The European Union will demand the right to raid financial services firms in Britain after Brexit and hand its regulators sweeping new powers, as Brussels moves to shackle the City of London with red tape after the UK leaves the bloc.

The three regulators, the European Supervisory Authorities (ESAs), will be given extra resources, levied in large part from British-headquartered firms, under the plans to closely police enforcement and regulation of the City.

Brussels will bestow the new powers on the ESAs during the Brexit transition period, when Britain will be stripped of EU voting rights and be powerless to stop the changes.

After transition, the ESAs will report to the European Commission, which will act as gatekeeper to the Single Market for firms. The commission has the power to withdraw access to the Single Market with just 30 days’ notice if Britain strays too far from EU rules.

British regulators have, since the financial crisis, been more draconian than their EU counterparts but that has not quelled fears that the UK will lead a “race to the bottom” that could endanger financial stability across Europe.

Michel Barnier, the EU’s chief Brexit negotiator has warned that British financial services firms will lose their automatic passport to the Single Market after Brexit. He has also insisted that financial services cannot be part of a future UK-EU trade deal, which is the solution favoured by Theresa May’s government.