The UK's financial sector is seeking an "ambitious" trade pact between Britain and the European Union to try to prevent a costly shift of jobs and business to the continent once the country leaves the bloc, according to a draft report seen by Reuters.
Unless Britain negotiates new trading relations with the EU, banks, insurers and fund managers in Britain could be locked out of the bloc's markets when it leaves the EU in March 2019.
The International Regulatory Strategy Group (IRSG) said in the draft report, to be submitted to the British government in September, that such a trade pact would allow UK firms to operate in the EU without the cost of having a local licence.
"The proposals in the report are intended to achieve a level of mutual access for EU and UK firms, which is as close as possible to the current levels of access that exist for such firms within the EU framework," the report said.
It admitted negotiating such a pact could be challenging. Other EU capitals have been vying to attract London's financial businesses since the Brexit vote.
Currently, banks authorised in London can "passport" or offer their services to customers across the EU without the need for a licence in each country, but this will end when Britain leaves, forcing the country to agree new trading terms.
No such trade pact in financial services has been tried before and the report said it was "ambitious in its intent".
Initially, the financial sector called for continued full passporting rights after Brexit, which is being negotiated over two years since Britain triggered the process in March, following a referendum vote in June last year.
The new proposals mark a departure from that stance, a recognition that the EU is likely to rule out future passporting.
The IRSG is sponsored by the City of London Corporation, home to London's "Square Mile" financial district, and TheCityUK, Britain's most powerful financial lobby.
Its report sets out how a trade pact for financial services could be structured and policed by a new dispute resolution body with powers to sanction breaches.
Punishment could include withdrawal of mutual access rights, the payment of "compensation" in the form of offsetting trade benefits, or retaliatory steps, such as measures that affect an equivalent value of trade, the report said.
No such trade pact in financial services has been tried before and the report said it was "ambitious in its intent".
Britain's finance ministry did not respond to a request for comment.
TheCityUK chief executive Miles Celic told Reuters he has already been making the case for mutual recognition during visits to Brussels and other European capitals. "The general response has been that while ambitious, it is not unrealistic," he said.
The future of London as Europe's financial centre is one of the biggest issues in Brexit talks because it is Britain's largest export sector and biggest source of tax with rival cities battling to draw highly-paid banking jobs and the revenue that they bring with it.
Few banks and insurers believe such a trade pact can be in place by March 2019, and some have already announced they are opening locally licensed subsidiaries in the EU to avoid being cut off from customers on the continent.