The key for business during the Brexit process is to maintain an uninterrupted service to clients, according to a new report on the legal impact of Brexit on the UK-based financial services sector from a Magic Circle law firm.

Freshfields Bruckhaus Deringer LLP’s report finds that due to the uncertainty of the Brexit negotiations, firms are making contingency plans based on a “worst case” scenario that no equivalence, passporting rights or other access regimes will be in place before the expiry of the two-year negotiation period. For some firms, these contingency plans include relocating some EU-client facing services to Europe. For others, they will involve adopting alternative strategies and other forms of business organisation.

Commissioned by TheCityUK, Freshfields’ report is based on input from the firm’s legal practitioners and interviews with representatives of the UK financial services sector.

The report also shows that for many UK and EU regulated firms, two years will not be a sufficient period to allow an orderly reorganisation of their functions, should that be necessary. A longer and phased implementation period, signalled early in the Article 50 negotiations, would be highly desirable for the sector and would be mutually beneficial for the EU and the UK.

The report also highlights areas of particular industry focus, including maintaining flexibility in cross-border employment rights and rights of residence; the security and cross-border transfer of data; access to and continuity of service provision by market infrastructure; and mutual recognition of professional qualifications.

Freshfields partner James Smethurst said: “The legal impact of Brexit on the UK-based financial services sector is clearly of great importance globally. This report attempts to identify what areas of financial services business stand to be impacted the most by Brexit and may help to inform firms’ strategic solutions as the UK-EU negotiations begin”.

Miles Celic, chief executive of TheCityUK, added: “The primary objective for our industry through Brexit - and beyond - is continuity of service provision for customers and clients. This can best be delivered through a bespoke arrangement based on mutual market access and mutual regulatory recognition and cooperation. There should also be appropriate bridging and adaptation periods, with clarity on this early in the negotiations.

“The UK-based financial and related professional services industry has long been a driver of growth and job creation on both sides of the Channel. It is in our common interest that this role is not just preserved, but promoted”.