UPDATE 1-French watchdog expects Britain to diverge from EU on financial rules

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By Huw Jones

LONDON, May 12 (Reuters) - French markets watchdog AMF said on Wednesday it expects Britain to take advantage of Brexit to diverge from European Union financial rules in an effort to make the City of London more attractive to investors.

The City has been largely cut off from the EU as Brussels has yet to decide on how much direct access it will grant Britain in financial services, a sector not covered by the bloc's post-Brexit trade deal with the UK.

Britain's access to EU markets will hinge on whether Brussels deems UK financial rules sufficiently "equivalent" or aligned with those in the 27-nation bloc. This is made harder by divergence on either side.

"I see obviously an increasing divergence between the UK and EU27, but I think it's quite normal," AMF Secretary General Benoit de Juvigny told a conference held by the International Swaps and Derivatives Association.

"The UK intends to take advantage of its new autonomy and try to develop its own financial centre, its own financial market, and the EU is attached to its sovereignty and wants to develop its own financial services."

The bloc's financial services chief Mairead McGuinness told the ISDA conference on Tuesday that equivalence would not be granted if there were a "wide divergence" in rules.

Separately on Wednesday, France said it would delay implementing any EU cooperation agreement with Britain in the area of financial services until the UK grants European fishermen fair access to its rich fishing waters.

A lack of cross-border access has forced swathes of trading in euro-denominated derivatives to leave the City for the EU and New York, putting branches of French and other EU banks in London at a disadvantage.

"I really think it's a bad solution. I hope the EU authorities in future find a different solution," de Juvigny said. (Reporting by Huw Jones. Editing by Jane Merriman and Gareth Jones)