LONDON (Reuters) – Britain’s draft divorce settlement with the European Union is preferable to a no-deal Brexit even though this would leave it without a say over EU financial rules, its finance industry watchdog said on Thursday.

The Financial Conduct Authority’s report was requested by parliament’s Treasury Select Committee to inform lawmakers ahead of a vote on the Brexit deal and declaration on future trading relations with the EU on Dec. 11.

The finance ministry and the Bank of England published their own views on Wednesday.

“An exit without agreement would carry much higher risk and carry significant uncertainty for us and for firms,” the FCA said in its report.

“Against that background, and viewed through the lens of our statutory objectives, the draft Withdrawal Agreement and the outline political declaration are preferable steps.”

An implementation or transition period from March to the end of 2020, as outlined in the Withdrawal Agreement, would avoid “cliff-edge” risks and smooth the UK’s transition to a new relationship with the EU, the FCA said.

But there are over 30 financial rules being negotiated in the EU, and from next March Britain will have no say over them, the FCA said. Britain would have to apply existing and new EU rules during transition and any extension to it.

FCA Chief Executive Andrew Bailey said the watchdog’s preference is therefore to keep the transition period “to a minimum” and conclude negotiations on future trading relations as soon as possible.

According to the declaration, future relations will be based on the bloc’s “equivalence” system, whereby access depends on UK financial firms following rules that are similar to those in the EU.

It does not cover bank lending, deposits, and some insurance activities, and can be withdrawn at short notice.

The declaration says the EU would “aim” to complete its “equivalence” determinations for UK firms by mid 2020.

The FCA said the declaration provides for close regulatory engagement and the possibility for a much better relationship than a standard third country position, the FCA said

But changes were needed to make the equivalence system sustainable and predictable.

“We would welcome the EU and UK also committing to expand the scope of equivalence frameworks over time, to provide for greater coverage across a wider range of financial services.”

Simon Morris, a financial services lawyer at CMS, said requiring formal equivalence assessments indicates distrust and disarray despite decades of close cooperation inside the EU.

“It looks like the end result will be no more than patchy and revocable equivalence decisions. This is a far cry from the present comprehensive freedoms that UK plc enjoyed,” Morris said.

The FCA said a no-deal Brexit would mean financial firms losing unfettered access to the EU’s investors, forcing them to rely on World Trade Organisation rules and on EU or national member state rules for non-EU states.

But the impact would also depend on how much contingency planning Britain and the EU have done for a no-deal Brexit.

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