Charles Dickens famously opened A Tale of Two Cities as follows: “It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us.” For the City of London it is probably the worst of times as firms face the cost of implementation European Union legislation by 2018 but may be unable to participate in the increased activity promised by the Capital Markets Union.

MiFID II, the regulations covering financial markets in the European Union, will come into force from January 2018. Financial firms in the UK still have to spend millions to comply with all the MiFID II requirements while the UK remains a member of the EU and during the exit negotiations, which could take two years. The negotiations will not even begin until the UK has a new Prime Minister, who will then have to trigger the EU exit mechanism, which will then kick off the two-year process.

If the UK does not negotiate a replacement for the passport which allows EU firms to sell financials services and products across the 28 member states, the City of London is likely to see an outpouring of business and staff, especially it it losses the right to clear euro transactions. It is ironic that the City could lose access to the EU just as it aims to establish the building blocks of an integrated capital market by 2019 its break the dependence on bank loans in providing corporate financing.

The Capital Markets Union action plan was published last September and sets out a programme of 33 measures, focused on six objectives. Niall Bohan, overseeing the European Commission’s planned Capital Markets Union, said at conference hosted by the Association for Financial Markets in Europe last month that in the EU 75% of funding for small and medium-sized enterprises comes from bank debt, and that is more than 90% in some states.

The CMU aims to accelerate funding for high-growth firms who are starved of alternative forms of finance in many parts of the EU, despite being responsible for one-third of job creation. To catalyse private investment into venture capital markets in Europe, Bohan said the Commission will ask private sector asset managers for expressions of interest from in managing a fund-of-funds of between €500m and €1bn to invest in European venture capital.

To help boost capital markets, the European Fund and Asset Management Association has also proposed the creation of a new type of pension product that could be offered to all EU citizens in addition to the pension products currently available in each member state, which could have benefitted the UK fund management industry, by far the largest in the EU.

The City could also miss out on benefits of any recommendations made by the European Post-Trade Forum of industry experts which started work in March last year to advise the Commission and is due to report in February 2017 on ways of reducing costs and increasing efficiency.

However the City has already lost influence despite the referendum only taking place last week. Jonathan Hill, the UK’s only EU Commissioner, resigned after the referendum as he was in charge of  the financial services portfolio and a driving force behind the CMU.

Hill said in a statement: “I came to Brussels as someone who had campaigned against Britain joining the euro and who was sceptical about Europe. I will leave it certain that, despite its frustrations, our membership was good for our place in the world and good for our economy. But what is done cannot be undone and now we have to get on with making our new relationship with Europe work as well as possible.”

In addition the EU has already said it is planning to move the 150 staff of the European Banking Authority, which writes and coordinate banking rules, away from London.

The EBA could move to Frankfurt or Paris although Italy’s former prime minister Enrico Letta told Reuters on Sunday that Milan is the right place. If Scotland becomes independent and remains in the EU, then it could become a beneficiary of any loss of any business from London, especially as it already hosts a large asset management and insurance industry. Dublin and Luxembourg are also likely to vie for asset management.

Mark Boleat, Policy Chairman of the City of London Corporation said in a statement after the result: “The City of London has thrived as a financial and trading centre for more than a thousand years and will continue to do so.  There will be no mass exit of banks and financial institutions from the Square Mile. While there will be uncertainty as Brexit negotiations go on we are still the financial centre of the fifth-largest economy in the world.”

Boleat added that the Government should push for the UK to retain access to the single market and keep a flexible labour market.

The evolution of the post-Brexit world is likely to be a tale of more than two cities.

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• OPINION: Brexit Kicks Off Busy Trading Summer
• Will Brexit Affect the City of London ?