European finance ministers meeting in Brussels have agreed to clamp down on the regulation of hedge funds.
Most of the member states want more visibility and tighter controls over an industry they view as being instrumental in exacerbating Greece's debt collapse.
The proposals include trimming how much fund managers are paid, a ban on naked short-selling and a curb on borrowing to avoid some hedge funds from being leveraged to a high degree.
But with 80% of Europe's hedge funds operating out of London, it is the UK that stands to lose the most and new Chancellor, George Osborne, made representations against the measures.
The UK would be badly hit because although a fund manager may be sitting in London, the fund's pot of money may be in the Cayman Islands, categorizing it as a "foreign fund" that would have to comply with the new rules.
The plans were already well progressed before the Brussels meeting, giving Mr Osborne little manoeuverability.
He told Sky News: "I was left a difficult negotiating hand by the previous government. I was outnumbered on the hedge fund directive."
The German chancellor warned his new counterpart: "I think Britain will understand, this is how it is in Europe. We are a union, and there are decisions that go against individual countries, but that can happen to any one country."
But the Chancellor said some success had been achieved.
It was put on the record that some members had concerns over proposed stringent licensing requirements for hedge funds. The requirements would force non-EU funds to obtain separate licenses to deal with each EU member state.
A treasury spokesman said getting the UK's reservations formally noted is a testament to "committed, intensive and fleet-footed negotiations" by Mr Osborne, who was building on relationships he had established as shadow chancellor.
The European finance ministers' stance on hedge fund regulation will now be taken to the European Parliament where it will debated and thrashed out. If passed the new regulations are likely to take effect in 2012.