Phase 1 is over: the UK will officially leave the EU this evening. But whether that event represents the beginning of the end of the Brexit saga, or just the end of its beginning, depends on one’s perspective. One thing is certain: after nearly 50 years of membership, the UK’s departure from the European Union (or the European Economic Community, as it was known when Britain joined in 1973) is an historic event with far-reaching consequences. It is, however, much more difficult to predict with any certainty what those consequences will be – for the UK and for the rest of the EU. That uncertainty will last for some time.

In the near term, the legal framework will change very little. The UK’s formal participation in the EU’s institutions and rule-making bodies will end immediately, but – under the transition (or implementation) period that has been agreed – the UK will be bound to follow EU law until the end of 2020, and most of the rights and privileges of EU membership will continue. It is possible for the transition period to be extended, but – given the UK government’s apparent determination to avoid an extension, a determination that is now enshrined in UK law – that seems unlikely. In reality, therefore, firms should be prepared for the legal framework to change on 1 January 2021.

Negotiations on the future UK/EU relationship will be tough. Some potential deal-breakers, like fishing rights, could make it impossible to conclude the “comprehensive and balanced free trade agreement”, contemplated by the joint Political Declaration, before the end of the year. Both sides will strive for an agreement, of course, but no one should take it for granted. For private equity firms, an ongoing assessment of the effects of a “no-deal” Brexit remains important. Making sure that European portfolio companies are properly prepared should be a priority.

However, although the UK government has high aspirations for an agreement on trade in goods, its ambitions on market access for financial services firms seem rather limited. That is, perhaps, because it is unwilling to pay the price that the EU would demand for privileged access rights: continuing (and “dynamic”) alignment with the EU rulebook. The UK negotiating team has made it clear that Britain is not prepared to be a rule-taker in financial services, and – although the UK has no immediate plans to change its own laws – will retain the right to diverge in future.

This new regulatory freedom could yet offer some benefits to private fund managers but, for the time being, their obligations will be the same as now – but without the compensating benefits. That is because the UK will “onshore” all EU rules and, with technical adjustments to make them work in the new context, preserve the status quo. The EU, meanwhile, will treat the UK as a “third country” and, at the end of the transition period, remove the passporting rights that UK firms currently enjoy.

Preparing for that cliff-edge has been a priority for firms since 2016, with many setting up parallel structures to preserve market access. Those contingency plans are very likely to be needed in 11 months’ time.

Although the longer-term rules of the game for UK-regulated firms are not settled, the broad shape of the regime that they will face on 1 January next year is becoming clear. Firms that want to use a pan-European passport to distribute their private funds will need to set up a manager in another EU member state, or employ the services of a host, and use an EU fund vehicle (most likely a Luxembourg partnership). For the time being at least, they can then rely on the existing and well-established rules on delegation and the provision of advisory services to maintain a significant presence outside the EU.

For UK domestic or international firms that do not want to go to this expense, the EU’s national private placement rules are an imperfect, but often workable, alternative way to reach investors in most EU countries, and these should be available to UK firms from 2021, just as they are available to other third-country managers now.

Firms that want to distribute funds or do deals with support from a UK-regulated firm that does not itself manage funds (typically regulated as an “adviser-arranger”) will need to analyse on a state-by-state basis whether their activities require regulation anywhere in the EU and, if they do, will need to establish an EU-regulated presence or find an alternative way to avoid breaches of local law. At the same time, EU nationals living and working in the UK, and UK nationals living and working in the EU, should consult appropriate experts to make sure they have filled in the necessary forms that will enable them to continue to do so.

The EU is looking hard at its own rulebook and will be conscious of the competitive threat that the UK will pose to the EU’s financial sector. The EU will also keep a close eye on any perceived systemic risks that arise from having so much of the EU’s financial services market operated by firms that are outside its regulatory perimeter. It may, for example, seek to challenge the extensive reliance on delegation provisions that third-country firms currently enjoy. Meanwhile, there is much that the British government and regulators can do – and may well be willing to do – to encourage firms to stay in, or even move to, the UK. Many troublesome and seemingly pointless rules could be reformed to make the UK’s regulatory architecture simpler and more user-friendly – but without being any less robust.

So, in the longer term, the situation is far from clear and the rulebooks not necessarily stable. It will be crucial to monitor upcoming developments vigilantly. But, for now, firms will prepare for the cliff-edge that they will probably confront at the end of the year and – although not straightforward – at least they know what they need to do.