The last-minute deal between London and Brussels has left the UK's financial services sector in the dark, according to several investment professionals. They expect damage, but not disaster, in this post-Brexit era.
Prime Minister Boris Johnson recognised that the Brexit trade deal failed to meet his ambitions on financial services.
At the UK's request, services were kept out of trade talks with Brussels, in a move that left the country's financial sector with only limited access to the £30bn-a-year EU market.
London and Brussels have pledged to agree on a memorandum of understanding on regulatory co-operation and equivalence by March, but that is not soon enough to reassure the markets.
In the week after the UK's finance industry lost its blanket access to the EU, €6bn worth of daily share trading moved from London to the continent.
EY estimated that £1.2trn in assets - and some 7,500 jobs - transferred to the EU before the end of the transition arrangement on 31 December.
Downing Street said it will set out its own plans for how to use the UK's new regulatory freedom to diverge from EU rules. Chancellor Rishi Sunak promised the City it would seek to "do things a bit differently."
Sunak pitches the City to the world
Sunak claims that new regulatory autonomy in London could give the sector a boost. He told MPs Brexit will help "reinforce the UK's position as a globally pre-eminent financial centre."
He added: "What is probably more important is the culture and creativity of our people. And no document can take that away from us. I feel very confident, and very excited, about the future of the City of London and financial services in general."
Asset managers in London are still not sure what is next for the world's second-largest financial centre. Damage is expected, but not disaster.
Patrick Thomson, EMEA CEO for J.P. Morgan Asset Management (JPMAM) told Investment Week that the City is ready to explore opportunities post-Brexit.
"We believe the UK can maintain a leading role in the asset management sector given the demand for international and domestic financial services products, as well as contribute to the development of international regulatory standards."
He added: "The Chancellor has stated his intention for the UK to be open for business which is a very welcome message for international asset management firms to continue to invest in their operations in the UK.
"It will be important that the regulatory agenda matches this ambition. And while the recently agreed Brexit trade deal is limited in its coverage of financial services, it creates a solid platform on which to build a co-operative, new relationship.
"This will be important for avoiding unnecessary market fragmentation which, we believe, is not in the interest of investors."
Bob Wigley, the head of UK Finance, said: "It will be important to build on foundations of this trade deal by strengthening arrangements for future trade in financial services."
Sunak believes that lighter regulation of the City will allow it to develop as a centre for emerging industries, such as green finance, or technology companies.
However, other asset managers contacted by Investment Week are more hesitant, citing uncertainty around the topic of financial services post-Brexit to remain silent about the future of the sector.
But the City still has significant opportunities following the Brexit transition period, according to some.
A template for post-Brexit success?
In the first significant split from EU policy, the Treasury announced it will draft legislation to bring trading in Swiss shares back to London in the coming weeks.
Nestlé and Roche, two of the five most traded shares in Europe last year, are among the hundreds of Swiss stocks that will be available to trade in London.
Although it will not be enough to make up for the loss of EU share trading, Switzerland and the UK are seeking to deepen their links "through an ambitious and comprehensive mutual recognition agreement".
Regulators have also been quick to say that it is business as usual after Brexit. The Bank of England said European Union banks' branches in London should see no major change in how they are supervised.
There are currently 66 banks from the EU seeking permission to operate as a branch in the UK.
As Brexit continues to deliver a series of blows to the City and a question mark hangs over the Square Mile, the Swiss plan shows that there might be opportunities elsewhere to secure the City of London's attractiveness as a global financial centre.
This article was first published by our sister title Investment Week
