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.

Brussels can grant direct market access for foreign financial companies if it deems their home market rules are as robust as the EU's own standards, a system known as "equivalence."

A person familiar with Britain's negotiating position said the UK focus is on making sure the MoU provides transparency and appropriate dialogue when it comes to adopting, suspending and withdrawing equivalence decisions.

(With input from agencies)