FOR the City of London, the uncertainty around Brexit has been a quagmire. Its financial firms, deeply connected as they are to the rest of the European Union, have been forced into extensive contingency planning, including moving operations and staff, in order to be prepared for any possible Brexit scenario. The government’s white paper, published on July 12th, at last brought some clarity, representing Britain’s most detailed Brexit plan to date. But for some in the City, it also proved a bitter disappointment.

Passporting, which has allowed the City’s firms to trade across the EU without separate regulatory or capital requirements, is tied to membership of the single market, which was rejected early on by the British government. Since January 2017 the City has sought the next-best option, a deal based on “mutual recognition”, where Britain and the EU would recognise each other’s regulatory regimes and allow licence-free access in both directions. A detailed proposal was laid out last September by a group co-sponsored by TheCityUK, an industry body, and the City of London Corporation. Theresa May and her chancellor, Philip Hammond, said they would seek mutual recognition.

This option, however, has been roundly rejected by Brussels as too close to the single-market passport. It was, therefore, dropped from the white paper. Predictably enough, this has caused consternation and disappointment in parts of the City. Miles Celic, head of TheCityUK, lamented that mutual recognition had been “dropped before even reaching the negotiating table”.

Yet such an approach would not have made it far. As Damian Carolan of Allen & Overy, a law firm, points out, it is hard to see why the EU would have agreed to it. The real question is whether European negotiators are willing to be flexible even on Britain’s new proposal, which, though based on existing “equivalence” provisions, goes far beyond them.

Existing provisions in various EU laws allow access to financial firms from outside the bloc if their home country’s regulatory regime is deemed equivalent. Touted by City bosses as an alternate access route to Europe since the first days after the referendum in 2016, and favoured by Michel Barnier, the EU’s Brexit negotiator, equivalence might seem a shoo-in.

But its shortcomings, particularly from a British perspective, have long been obvious, too. Only some regulations, notably one governing clearing-houses, as well as another for trading, brokerage and underwriting services to institutional clients, contain equivalence provisions. Much of finance, notably bank lending and insurance, is not covered. Even where the provisions exist, applying them is up to the European Commission, which has discretion to apply the status or withdraw it at just a month’s notice.

Little surprise, then, that the British government wishes to modify the arrangement considerably. Its proposal would entail formalised supervisory co-operation between British and EU regulators, procedures to discuss changes to rules on either side, and a dispute-settlement mechanism for when one party threatens to withdraw equivalence. A charitable interpretation is that this provides a useful starting point for improving the equivalence system—after all, even the EU is unhappy with parts of the regime, such as its reliance on foreign regulators, with no role for EU oversight.

But in a world where Europe wants, if anything, to tighten the rules on equivalence, it is hard to see why it would agree to such a system. Britain could always threaten to cut off access to EU firms. But such tactics would work only if Europe saw value in accessing London’s deep markets. At least in some countries, the focus seems to be more on forcing companies to relocate. France, for instance, has recently taken the position that certain types of firm should have to set up a branch or subsidiary within the EU, even under an equivalence regime. (France is among those trying hard to woo businesses away from London.)

Worse still for London’s financiers, however, is the fact that just eight months before Brexit, basic questions around the divorce remain unanswered. The legal uncertainty around tens of thousands of pre-existing derivatives and insurance contracts, which could become invalid on Brexit day without an appropriate deal, is especially urgent. When even past issues are wide open, pinning down a future relationship is nigh on fanciful.