The United Kingdom and the European Union have agreed on a deal that will give London's vast financial center only a basic level of access to the bloc's markets after Brexit.
The agreement will be based on the EU's existing system of financial market access known as equivalence — a watered-down relationship that officials in Brussels have said all along is the best arrangement that Britain can expect.
The EU grants equivalence to many countries and has so far not agreed to Britain's demands for major concessions such as offering broader access and safeguards on withdrawing access, neither of which is mentioned in the draft deal.
"It is appalling," said Graham Bishop, a former banker and consultant who has advised EU institutions on financial services. The draft text "is particularly vague but emphasizes the EU's ability to take decisions in its own interests. … This is code for the UK being a pure rule taker."
Britain's decision to leave the EU has undermined London's position as the leading international finance hub. Britain's financial services sector, the biggest source of its exports and tax revenue, has been struggling to find a way to preserve the existing flow of trading after it leaves the EU.
Many top bankers fear Brexit will slowly undermine London's position. Global banks have already reorganized some operations ahead of Britain's departure from the European Union, due on March 29.
Currently, inside the EU, banks and insurers in Britain enjoy unfettered access to customers across the bloc in all financial activities.
No commercial bank lending
Equivalence, however, covers a more limited range of business and excludes major activities such as commercial bank lending. Law firm Hogan Lovells has estimated that equivalence rules cover just a quarter of all EU cross-border financial services business.
Such an arrangement would give Britain a similar level of access to the EU as major U.S. and Japanese firms, while tying it to many EU finance rules for years to come.
Many bankers and politicians have been hoping London could secure a preferential deal giving it deep access to the bloc's markets.
Under current equivalence rules, access is patchy and can be cut off by the EU within 30 days in some cases. Britain had called for a far longer notice period.
The draft deal is likely to persuade banks, insurers and asset managers to stick with plans to move some activities to the EU to ensure they maintain access to the bloc's markets.
Britain is currently home to the world's largest number of banks, and about 6 trillion euros ($6.79 trillion) or 37 percent of Europe's financial assets are managed in the U.K. capital, almost twice the amount of its nearest rival, Paris.
London also dominates Europe's 5.2 trillion-euro investment banking industry.
Rachel Kent, a lawyer at Hogan Lovells who has advised companies on future trading relations with the EU, said the draft deal did not rule out improved equivalence in the future.
"I don't see that any doors have been closed," she said. "It is probably as much as we could hope for at this stage."