The government has backed down from its calls for mutual regulatory recognition post Brexit and will now push for a deal that will see UK and EU financial services firms' access to each other's markets scaled back when the country leaves the bloc.
In its long-awaited Brexit white paper, published on Thursday (12 July), the government called for "new economic and regulatory arrangements for financial services", which it argues would "preserve the mutual benefits of integrated markets and protect financial stability".
However, the government acknowledges "that these could not replicate the EU's passporting regimes", meaning "the UK and the EU will not have current levels of access to each other's markets".
In terms of the overall relationship the UK would have with the EU under the proposals, the government called for an "association agreement". Such agreements were initially designed for countries looking to join the EU, but are now more widely used.
In response, chief executive of the Investment Association Chris Cummings said while the trade body welcomed the "much-needed clarity" offered by the paper, "it is clearly disappointing that the government has ruled out mutual recognition as their preferred option".
He added: "We believe that a solution based on enhanced-equivalence can deliver a deal that works for savers in the UK and across Europe, and for the asset management industry that supports them.
"Every negotiation requires compromise. It is clear that our relationship with the EU is going to change, and we hope that both sides can approach this next stage in the spirit of the broad and special partnership that the UK has always had with the EU.
"A partnership that has for decades allowed our industry to contribute to the prosperity of millions of citizens across the whole of Europe."
In a tweet, chief Brexit negotiator for the EU Michel Barnier gave little away as to the bloc's opinion of the paper, stating: "We will now analyse the #Brexit White Paper w/ Member States & EP, in light of #EUCO guidelines. EU offer = ambitious FTA + effective cooperation on wide range of issues, including a strong security partnership. Looking forward to negotiations with the #UK next week."
Confirming the deal would see the UK leave the single market and customs union, as expected, Prime Minister Theresa May said in a statement: "Our proposal is comprehensive. It is ambitious.
"And it strikes the balance we need - between rights and obligations. It would ensure that we leave the EU, without leaving Europe.
"It would return accountability over the laws we live by to London, Edinburgh, Cardiff and Belfast, and end the jurisdiction of the European Court of Justice in the UK.
"It would preserve the UK's and the EU's frictionless access to each other's markets for goods, protecting jobs and livelihoods on both sides, and propose new arrangements for services."
It follows a week in which the Prime Minister has been under pressure from the more heavy-handed of the Conservative Party's Brexiteers, amid high-profile resignations.
In response to the white paper, notable Brexiteer and backbench agitator Jacob Rees-Mogg said: "This is the greatest vassalage since King John paid homage to Phillip II at Le Goulet in 1200. This White paper has not needed age to turn yellow."
The government's position clashes with that of the 'alternative' Brexit white paper, masterminded by former Brexit secretary David Davis who resigned earlier this week. Davis' paper, which was leaked by Conservative Home before the government's position was revealed on Thursday, backs a "comprehensive system of mutual recognition, which covers a broad range of sectors and regulatory activity".
Members of the investment industry in the UK had supported such a plan, which has been less kindly dubbed the "cake-and-eat-it" approach by EU negotiators, who dismissed it out of hand.
Davis' paper said: "As part of a dynamic regulatory relationship, the comprehensive system of mutual recognition would establish a broad range of reciprocal measures allowing compliance activity undertaken at a national level to be recognised in both the UK and EU markets and recognise the underlying technical requirements.
"To ensure that both parties can rely on each other's authorities to comply with the relevant rules, the mutual recognition of conformity assessment and inspection will continue to be based on a jointly agreed accreditation framework, as is the case for other similar international agreements.
"In order to fully secure the UK's objective of one approval in one country for both markets, the comprehensive system of mutual recognition would include provisions for recognition of equivalence of technical requirements.
"Mutual recognition of each other's regulations and compliance activity capitalises on the fact that the UK is entirely aligned with the EU on day one and respects that businesses with highly integrated supply chains and trade want to minimise the disruption they could experience upon exit."
UK recovery mandate marking 10 years
Concerns rally is overextended
Female millennials invested 40% more year-to-date
Will compare with May 2017 results
Jane Ambachtsheer joins as global head of sustainability