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* FCA's Bailey expects access based on regulatory equivalence
* Watchdog asks for more money to pay Brexit work costs (Adds news conference)
By Huw Jones
LONDON, April 18 (Reuters) - Access to markets and workers in the European Union after Britain leaves the bloc is essential for maintaining healthy competition in financial services and avoiding disruption, the UK's markets watchdog said on Tuesday.
The Financial Conduct Authority (FCA) set out the key principles for advising the government on EU withdrawal negotiations in its annual business plan for next year, with handling uncertainties surrounding Brexit a top priority.
"Open markets are an important enabler of healthy competition, supporting FCA objectives," the watchdog said.
The regulator said the ability to recruit a diverse workforce would also help to ensure that markets and firms are well run and remain competitive - a nod to concerns at banks that they may no longer be able to recruit freely from EU countries in future.
FCA Chief Executive Andrew Bailey said the watchdog's Brexit contingency plans included the possibility of no EU market access, but noted that the government was looking to negotiate for keeping markets open in a free trade agreement.
Some firms are already looking to move operations in case no market access is negotiated.
"I start from the principle that firms, on the whole, don't want to move operations. We ought to set up a system of open markets where firms make these choices, not regulators and governments," Bailey told reporters.
The FCA said Britain should seek to have a say over the rules it applies. Regulators have said they do not want Britain to become a "rule taker" in order to obtain EU market access, meaning they must match the bloc's standards with equivalent rules.
Bailey, however, said he expected financial market access to be based on such a "regulatory equivalence" system, rather than on adherence to global principles, which he would prefer.
Consistent global regulatory standards and cooperation between national authorities will also be "fundamental regardless of the outcomes of the negotiations", the FCA said.
As future market access remains unclear, some firms have already decided to build up operations in the EU rather than risk disruption to established customer links.
"This lack of clarity will potentially lead to a period of prolonged uncertainty for markets, firms and consumers," the FCA said.
The watchdog, funded by levies on the firms it supervises, said its total requirement for the financial year starting this month was 526.9 million pounds ($663 million), up 1.5 percent or 7.6 million pounds on the previous year.
The increase is partly due to 2.5 million pounds extra needed to handle Brexit, the watchdog said.
The costs will cover the "lift and shift" work of converting EU financial law into workable UK rules, Bailey said.
The FCA also published its new "Mission", a 36-page document that resets the regulator's core objectives as Bailey seeks to draw a line under a string of mis-selling scandals spanning more than two decades.
It seeks to strike a balance between demands from the 56,000 firms it supervises and finite resources, saying that protecting the most vulnerable customers would be a priority rather than trying to avoid "zero" firm failures.
$1 = 0.7944 pounds Reporting by Huw Jones. Editing by Jane Merriman and Susan Fenton