By Huw Jones
LONDON (Reuters) - Prime Minister Boris Johnson has said that on Jan. 31 Britain will leave the European Union, the biggest export customer for its financial services sector.
This fourth attempt at Brexit, if successful, will start the clock on a new countdown for bankers during a "business as usual" transition period that ends in December.
Britain will have to ask the EU by June if it wants to extend the transition period beyond December.
Johnson has said he won't submit such a request and he is confident Britain will have a trade deal with the bloc agreed by the end of transition to avoid a "cliff edge".
Britain has yet to secure new trading terms with the bloc to follow transition.
The UK financial sector is likely to get restricted access at best under the EU's financial market access system known as equivalence. Britain and the EU have agreed they will "endeavour" to conclude by June the assessments needed for such access to EU markets for financial firms located in Britain.
Equivalence refers to the EU granting firms direct market access from a non-EU country if it decides that the home rules of foreign banks, insurers or asset managers are as robust as those in the bloc.
Bankers don't believe these assessments can be done by June for all equivalence requests given the system was intended for a relatively modest flow of business with far-flung countries like the United States, Japan and Singapore.
Britain's finance minister Sajid Javid has said they will be done in time.
WHO WANTS WHAT?
It will be up to the UK government to make any equivalence requests to the EU.
The European Commission decides which, if any, requests are granted. Simply having aligned rules, which Britain will have on Day One of Brexit, does not mean automatic approval, EU officials have said.
Faced with Brexit, the EU beefed up equivalence conditions for clearing houses and investment services, and said that requests from major financial centres - read London - would be scrutinised more extensively.
Big banks in Britain are seeking a basic, narrow form of access, but the insurance sector is divided, with UK-focused firms wanting to break away from some of the EU's insurance rules. Reinsurers like the Lloyd's of London market want equivalence, as do stock trading platforms.
Asset managers who picks stocks for funds based in Luxembourg and Ireland also need an equivalence-type determination by regulators in those EU states, but this should be easier.
Johnson has said he does not want to stay aligned to EU rules, which could make equivalence harder to obtain.
Britain has some leverage as it too will have to determine how much access to grant EU financial firms to the UK market under its own equivalence system imported from the bloc.
WHAT HAPPENS IF NO EQUIVALENCE?
Banks, asset managers and insurers based in Britain have opened over 300 hubs in the EU to cope with any form of Brexit, according to New Financial, a think-tank.
The hubs would allow them to continue serving EU clients even if there is no equivalence.
Some UK lawmakers question why Britain should bother with equivalence given that it offers limited access and ties Britain to EU rules.
This, they say, would make it harder to tweak regulation in Britain to keep London competitive as a global financial centre.
A debate on the future direction of financial rules in Britain is set to unfold after Brexit, pitting those who want to stay close to Europe against others who say Britain is better off setting its own rules, with a nod to international norms.
(Reporting by Huw Jones; Editing by Giles Elgood)