By Huw Jones

LONDON (Reuters) – The City of London’s finance industry would be worse off than rival New York under an early draft for a cooperation agreement in financial services between Britain and the European Union, a document, seen by Reuters, showed.

Britain’s financial services industry has been largely cut off from the EU, its biggest customer, since a Brexit transition period ended on Dec. 31 as the sector is not covered by the UK-EU trade deal.

Trading in EU shares and derivatives, for example, has already left Britain for continental Europe.

Both sides are committed to agreeing a memorandum of understanding (MoU) by the end of March on regular, informal talks about financial rules and market supervision.

An early draft of this document, seen by Reuters, has less substance than a deal the EU agreed with the United States in 2016, industry officials said.

“This is the start of a negotiation – the Commission proposed text is clearly more limited than the UK ambition,” said Chris Bates, a financial services lawyer at Clifford Chance.

The U.S. deal, for example, says equivalence, a reference to the EU’s system of granting direct market access to foreign financial firms, should be “outcomes-based”.

Britain has also called for EU equivalence to be outcomes based, which would ensure that the focus would be on whether financial rules in Britain and the EU produce the same result.

There is no mention of outcomes-based equivalence in the draft EU-UK memorandum.

The EU text is deliberately more unambitious that the U.S. agreement and does not reflect even the current depth of relationship with bilateral MoUs already signed between individual regulators in Britain and the EU, one financial sector source said

But industry officials also said that even the draft document now circulating would be a start in rebuilding trust between both sides.

“It is important to establish some framework for a regulatory dialogue even if there are low expectations of any movement on new equivalence decisions any time soon,” Bates said.

The financial industry wants Britain to include a provision for consultations with industry as part of the regulatory dialogue, the first source said.

“The MoU is on the lighter side of what the City wants,” a second financial sector source said, adding that this might make little difference given that Britain is likely to get only limited equivalence.

The European Commission declined to comment on the document. The UK finance ministry had no immediate comment.

Brussels has already made it clear that even an agreed MoU will not automatically lead to more EU access for London’s finance industry beyond time-limited permission to clear EU derivatives trades.

The EU executive is meeting with banks on Friday to ask how they can justify continuing to clear derivatives in London.

Bank of England Govenor Andrew Bailey said this week that Britain would resist any EU attempts to arm-twist banks into shifting trillions of euros in derivatives clearing from Britain to the bloc.

(Reporting by Huw Jones. Editing by Jane Merriman)