Britain must allow Brussels powers to approve its financial regulations following Brexit to preserve access to European markets, a senior EU official has said.
European Commission vice-president Valdis Dombrovskis said that future access will depend on a system of "equivalence" under which Brussels will exercise "unilateral and discretionary" powers to judge whether UK regulations meet its standards.
His comments reflect resistance in Brussels to Theresa May's call in her Mansion House speech last month for a new "collaborative, objective framework that is reciprocal (and) mutually agreed" by the EU and UK.
Mr Dombrovskis, who has responsibility in the Commission for financial stability, warned that "risks and uncertainty" remain about the terms of Britain's withdrawal from the EU.
He told a conference in the City of London that financial companies should "prepare for all scenarios" - including the fact they will lose passporting arrangements after Brexit.
He was holding talks later on Tuesday with Chancellor Philip Hammond and Bank of England Governor Mark Carney on how to avoid "major disruption" to markets on the day of Brexit.
However, the Commission vice-president stressed that he believes companies from both the UK and EU27 have the capacity to "alleviate" the main risks by repapering contracts and adapting operational models.
The system of equivalence - under which firms from 30 non-EU countries are already able to operate within the bloc without submitting to direct EU supervision - has become a major stumbling block to be negotiated in Brexit talks.
The Prime Minister made clear that she wants both London and Brussels to have a voice in agreeing whether regulations governing financial services on either side of the Channel will produce the same outcomes.
Mr Dombrovskis told the City Week conference: "Equivalence decisions are and will remain unilateral and discretionary EU acts. Even in trade agreements, governments do not give up power over their core responsibility to protect financial stability."
Equivalence status will only be granted if the UK's rules "achieve the same results as our own", he said.
He added: "Equivalence is only possible if there is close convergence of rules and supervision.
"If the EU and a third country should happen to go different ways, the conditions for equivalence would fall. This means that equivalence may be changed or withdrawn."
The EU will expect its supervisors to have a place alongside UK regulators on panels overseeing cross-border firms, he said.
He said the Commission has put forward proposals for European supervisory authorities to have "greater responsibility for monitoring the situation in equivalent third countries" - which would include the UK after Brexit.
Mr Dombrovskis said risks and uncertainty remained not only over the EU's future relationship with the UK, but also on the Irish border and the governance of the withdrawal agreement.
"It is my duty to encourage you to take steps to be prepared for all scenarios," he told his financial sector audience.
"I am convinced that companies from the UK and the EU27 have the capacity to manage the risks and uncertainty."