The Lords European affairs committee concluded that Brussels is playing politics by locking firms from the Square Mile out of the single market.
The UK has not been granted "equivalence" by the EU, meaning firms are blocked from its markets despite Britain's fiscal rules being broadly in line with its own.
Communist China has been granted the same privilege in a "dozen or more" areas, leading to the claim that the UK is being badly treated.
Peers believe it is the bloc playing politics, as London and Brussels remain in deadlock over the Northern Ireland Protocol.
Chairman of the committee Lord Kinnoull said: “China has been granted equivalence by the EU in a dozen or more areas.
"It looks odd and wrong that the UK has not been granted this considering we are democracies of a similar character.”
The report found that the EU’s decision was “political rather than technical” and that the UK is “being held to a higher standard than other countries”.
Brussels has been trying to force its financial service companies to shift their staff base from London to Europe.
Miles Celic, chief executive of lobby group TheCityUK, told the Lords committee that “there has always been a degree of politicisation to equivalence”.
Lord Kinnoull said the equivalence decision and a memorandum of understanding on financial services between the UK and EU were “caught up in the Northern Ireland Protocol debacle”.
Lord Hill, a former EU commissioner who led a review last year of the UK’s listings rules, told the committee: “They [the EU] think that an equivalence decision is a plum to give.
"And why would you give that before you know you want to give it and in exchange for something else?”
He also pointed out that the war in Ukraine shows how important it is for democracies to work together on financial regulations.
The EU's decision not to grant the UK equivalence has forced London-based companies to do business elsewhere, according to a top City lawyer.
Peter Bevan, a partner at City law firm Linklaters, said: “It seems extraordinary, really, that when Europeans and UK counterparties want to trade with each other, they have to go to another continent to find a venue to do so.”
The report also found that despite challenges, the UK’s financial services sector has retained its “resilience”.
It added that the Government should not be “complacent” about regulatory scrutiny and jobs moving from the UK to the EU.
European Commission President Ursula von der Leyen
European Commission
Prime Minister Boris Johnson greets EU Commission President Ursula von der Leyen ahead of a meeting in Downing Street
Stefan Rousseau