The EU's Brexit negotiator Michel Barnier has said that City firms will lose their financial passports when the UK leaves the EU.
Speaking at a Centre for European Reform conference, Barnier said: "On financial services, UK voices suggest that Brexit does not mean Brexit. Brexit means Brexit. Everywhere."
He added: "They say there will be no changes in market access for UK established firms, the say joint UK-EU rules would be decided in a new, symmetrical process... between the EU and the UK and outside of the jurisdictions of the European Court of Justice.
"This would contradict the April European Council guidelines, which are my mandate, which stress the autonomy of the European decision-making, the integrity of our legal order, and of the Single Market.
"The legal consequence of Brexit, the legal consequence, is that the UK financial service providers lose their EU passport."
Allie Renison, head of Europe and trade policy at the Institute of Directors, said:
Michel Barnier is right that as it currently stands, passporting rights wholesale are only applicable to countries who form part of the internal market. It is likely why IoD members in financial services are more advanced in contingency planning than other sectors.
However, he said there was a possibility that the EU could judge some of the UK rules as equivalent to its own, and said a good deal would facilitate as much market access as possible, while seeking to avoid a situation whereby the UK and the EU trade under WTO rules.
Barnier hammered home points he made earlier this year when he spoke to a select committee of the House of Lords about how the UK should approach trade negotiations.
Whether the UK decides to remain aligned with EU regulations, or move away from them, will be "decisive" in how the EU responds to trade negotiations, Barnier said, suggesting the national parliaments of the EU27 would refuse to ratify a deal if the UK wishes to ditch EU standards to gain a competitive advantage.
Catherine McGuinness, policy chairman at the City of London Corporation, said:
Over a number of months City practitioners have been working hard on a solution that will maintain regulatory coherence and encourage strong trade links that benefit both sides.
Unlike any other country, the UK is looking to secure an agreement from the exact same starting point as the EU and so the UK’s new trading relationship with the EU should reflect this unique situation.