As a result, there is speculation the EU could try to legislate to force more non-European business to leave London and move to the single market, or cajole international businesses into making such a move and so gain the other 75pc of the market.

Mr Bailey said: “Legislating extraterritorially is controversial anyway and obviously of dubious legality frankly.

“Probably therefore the more likely way to do it, which itself is controversial, is to say to firms you need to move this business into our area and if you don’t we will think of something else to do. And that would be very controversial. I think it would be a very serious escalation of the issue.”

Eurozone politicians have long coveted London’s financial power and sought ways to force business into the currency bloc even when the UK was a member of the EU, resulting in lengthy legal battles over the rules.

Brexit appears to have triggered the latest argument, although Mr Bailey noted that the UK and EU both follow guidelines set at a global level. The EU also deems New York’s clearing houses to be equivalent even though there was a much bigger gap between EU and US rules than the bloc has with the UK.

Earlier this month Mr Bailey used a keynote speech to the finance industry to warn that the European Union is poised to lock Britain out of its banking market by refusing to grant widespread market access in other areas through its equivalence regime, in a move that would push up financial costs for millions of consumers on both sides of the Channel.

“I don’t think there is a valid financial stability argument at all” for forcing clearing out of the UK, Mr Bailey said.

He added: “It is a matter of saying, have we got a set of rules for clearing houses that delivers safety and soundness and financial stability, and the answer is yes.”

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