Brexit Transition Deal Was 'a Timely One-year Anniversary Gift' But Longer-term Concerns Remain For The City

However, a new report from the Economist Intelligence Unit (EIU) has warned about the longer-term effect on the UK financial services sector as a result of the country's divorce from the bloc, while a hard Brexit could have serious implications for growth and prosperity over the coming years.

Bank of England warns Brexit remains 'material risk' to financial system

Some of the uncertainty for businesses concerning Brexit was reduced last month when a deal was agreed, enabling a 21-month transition period after the UK is scheduled to leave, meaning current laws and regulations will continue to be in place while the country unbinds itself from the union.

Many in financial services welcomed the transition announcement, but concerns remain - not least from Bank of England Governor Mark Carney, who cautioned recently that Brexit remains a "material risk" to the financial system.

EU chief negotiator Michel Barnier has also demanded Brexit negotiations be completed by 31 October for a deal to be signed, and further complications are added by the free vote UK MPs will have on the final deal.

Financial services

In terms of the impact on the financial services sector, the Financial Conduct Authority (FCA) said it welcomed the transition agreement, which enables "firms and funds [to] continue to benefit from passporting between the UK and EEA" during the period.

It said UK firms should not apply for new authorisations to trade in the EU during the period and it will "continue to cooperate closely with the home state regulators of EEA firms and the European Supervisory Authorities".

The FCA added: "We stand ready to work with them to address any risks to consumer protection and financial stability."

However, longer-term challenges remain, as the EIU report A year to go: how Brexit will affect UK industry warns passporting rights to and from the EU "have been the key way for financial services firms in one country to serve customers in other markets", and as a result of Brexit there will be a "loss of such privileges for UK-based companies".

EU authorities are also "unreceptive to requests for cherry picking of appealing aspects", such as continued financial services access to the bloc, it said.

The UK is instead more likely to pursue a policy of mutual regulatory recognition, which would include a requirement giving each side fair notice of any changes in the agreement, so that firms have time to adapt.

Brexit blog: UK and EU agree terms on Brexittransition deal

However, the report highlights the EU has not yet agreed to the unprecedented proposal, and backs "regulatory equivalence" of the kind it enjoys with the US, keeping "regulatory power firmly in the hands of EU institutions", but this idea is likely to face further opposition from Brexit campaigners in the UK.

As a result, UK firms could be forced to pursue individual licences in each of the EU27 states in which they wish to trade.