European Commission efforts to strengthen the regulation of financial services in the wake of the credit crunch risk exacerbating the sector's downturn and adding to the tens of thousands of job losses already forecast, the City of London will warn today.

"Proposed changes could greatly increase the cost of capital across Europe with detrimental effects far beyond the financial services industry," said Stuart Fraser, chairman of policy and resources at the City of London, which will today publish its gloomy forecasts.