The City of London financial district's preferred option for future trading relations with the European Union after Brexit won't work, a senior EU lawmaker said on Wednesday.

The City has called for two-way market access based on a system of "mutual recognition" or Britain and the bloc accepting the broad thrust of each other's financial rules.

But Danuta Huebner, a member of the European Parliament's economic affairs committee, said mutual recognition would reduce the EU's ability to set its own financial rules.

The best basis for future trade in financial services would be "equivalence", Huebner told a derivatives conference.

Equivalence refers to the bloc granting market access if it deems that the rules in force in a non-EU state are aligned with its own. Britain has ruled this out, saying it's a one-way process that can be withdrawn at short notice.