The City has blasted the government’s decision to drop its favoured post-Brexit trade model for financial services following the publication of the long-awaited white paper.

A senior City of London policymaker said the move was "a real blow" to financial services, while a top lobby group called it "regrettable and frustrating".

The white paper, which sets out the UK’s official position for talks on the future relationship with the European Union, says the government will no longer pursue so-called "mutual recognition" between London and Brussels.

The mutual recognition model was promoted by City representatives and would have seen the UK and EU recognise each other's regulations across a wide range of financial services.

Chancellor Philip Hammond recently dismissed the EU's own equivalence regime – in which third party countries can adopt equivalent rules in certain areas – as insufficient. However, the government is now proposing an improved form of equivalence.

Existing frameworks for equivalence would need to be expanded “to reflect the fact that equivalence as it exists today is not sufficient in scope for the breadth of the interconnectedness of UK-EU financial services provision”, the white paper said.

Top City figures slammed the decision to back down from mutual recognition without a fight.

Policy chairman of the City of London Corporation Catherine McGuinness said it was “a real blow for the UK’s financial and related professional services sector”, warning of the impact it would have on job creation and growth in the wider economy.

“The sector has been clear since the referendum: Equivalence in its current form is not fit for purpose so any 'enhancements' to this regime would have to be substantial,” she added.

Miles Celic, chief executive of TheCityUK, said it was "regrettable and frustrating" that mutual recognition had been dropped "before even making it to the negotiating table".

He added: "In hundreds of discussions across the EU, the industry has never come across an unanswerable technical or commercial barrier to this approach. The EU’s objections have always been political.”

Iain Anderson, chair of City lobbyists Cicero, said: “The proposals on financial services mark a distinct policy shift from what was previously set out by the chancellor Philip Hammond during his Canary Wharf speech earlier this year.”

But not everyone was totally dismissive.

Chris Cummings, chief executive of the Investment Association, said it was "clearly disappointing" that mutual recognition had been ruled out. Nonetheless, enhanced equivalence "can deliver a deal that works for savers in the UK and across Europe, and for the asset management industry that supports them,” he added.

Adam Marshall, director general of the British Chambers of Commerce (BCC), told City A.M.: "Businesses have been waiting a long time for a clear and comprehensive sense of how the UK sees its future relationship with the EU – the challenge now is to turn that into something that answers business' questions.

"Nothing has changed as a result of the white paper because we need to go from ambitions to concrete answers. The next three months will be absolutely critical."

He urged the EU to join the UK in "really cracking on towards a deal", saying: "That requires the EU side being as pragmatic as the UK is trying to be."

UK Finance chief executive Stephen Jones said: "Simply relying on existing equivalence arrangements will not provide financial institutions with effective market access that enables them to serve their customers. The government is right to want to propose a new economic and regulatory arrangement which seeks to strengthen and expand the current third country regime."

But he added: "Given the limited time available it is vital that both the UK and EU27 negotiators come to the table and focus on ensuring a legally enforceable agreement, delivering enhanced and expanded third country arrangements that enables meaningful cross-border market access in financial services.”

David Balston, director of policy at the Chamber of Shipping, called on the EU to "get serious and stop being prisoner to its own dogma".

He said: "The UK is being constructive, collaborative and realistic. If the EU dismisses these proposals, as it has previous iterations, or tries to push the UK even further, then the risk of a no-deal Brexit will rise dramatically.

"If that comes to pass it will be because of their own intransigence, and they should be under no illusions: a no-deal scenario would significantly damage the European economy as well as the UK’s.”

An HM Treasury spokesperson urged the City not to be disheartened by the white paper.

“We want to have a close future relationship on financial services with the EU – this should not be in doubt,” they said.

“This proposal is the best option for getting a good deal for the City. It preserves the mutual benefits of integrated markets, protects financial stability, and preserves the City’s global reach.”