Lost revenue from European businesses as a result of Brexit’s impact on the UK’s financial sector could range from $2.4 billion to $27 billion, depending on how the country’s exit from the European Union is ultimately negotiated, according to estimates from Oliver Wyman.

London is the world’s leading international financial center, rivaled only by New York, and as such, its banks, insurers, asset managers and associated firms collectively contribute about $147 billion in gross value added (GVA) to the economy, employ more than a million people, pay about $80 billion in corporate and income taxes and contribute $124 billion surplus to the UK’s balance of payments.

The ultimate impact on the financial sector depends on the details of the Brexit negotiations with the European Union (EU). If “passporting” is preserved, allowing UK financial firms to serve customers anywhere in the EU, and UK and EU regulations are deemed to be “equivalent” across a broad spectrum of EU directives, Brexit will have a limited impact on the access of UK-based financial firms to the EU. This is the “high access” scenario.

The “high access” scenario is estimated to have only a modest downside: the loss of about $2.4 billion in revenue from EU business, 3,000 to 4,000 jobs at risk and tax revenues reduced by less than $600 million. London will likely remain the financial hub of Europe, with the concentration of skilled workers, interconnected firms and supporting infrastructure that explain its current preeminence.

But significant uncertainty remains. At the other end of the spectrum, Brexit negotiations may not preserve passporting and regulatory equivalence. This “low access” scenario, in which access to the single European market is far more restrictive than it is today, would result in a much larger impact on the UK’s financial services industry.

Total revenue losses from Brexit impact on UK’s financial sector could hit $27 billion, with up to 75,000 jobs lost.

‘Second-order’ Effects Could Double Losses

We assessed the likely effects of Brexit without “passporting” and regulatory equivalence by considering each link in the value chains of the main lines of financial services business. The effects will be greatest in international and wholesale banking, which account for just under half of total financial services revenue in the UK. By our estimates, the first-order effects—those arising directly from lost EU-related business—would include an $11 billion-to-$15 billion reduction in GVA, about 30,000 lost jobs and a $4 billion-to-$6 billion reduction in tax receipts.

These first-order losses would have negative ramifications throughout the wider financial services ecosystem. For example, an operational function may need to be located in the same place as the business it supports. When a global bank shifts its EU-customer-facing activities from London to Frankfurt or Paris, some of the support functions will go with them. By diminishing London’s leading position in European financial services, a hard Brexit will lessen London’s role overall.

We expect the losses from such second-order effects to be as large as first-order losses: roughly doubling the loss in GVA to $22 billion to $27 billion, job losses to 65,000-75,000 and reduction in tax receipts to $22 billion to $27 billion.

Of course, some compensating gains may result from new arrangements outside the EU; however, the UK is best placed to make the most of these opportunities if it remains a leading financial center in Europe.

Our analysis suggests that a high-access scenario with a clear and sensible transition period would minimize disruption to the industry, benefiting customers who have come to rely on the UK as a uniquely skilled and connected center for financial services.

These customers come not just from the UK, but from the EU and around the world. A high-access scenario would also enable the UK to maximize the potential growth opportunities that could arise from the UK’s exit from the EU.

As such, the best outcome for the consumers of UK-based financial services, be they from the UK or the EU, would include a number of key features, including continued adherence to global norms concerning matters such as the delegation of portfolio management and clearing of reserve currencies and exemptions on margins for intragroup exposures. Current levels of access to international markets (which the UK currently enjoys due to its EU membership) should be retained through regulatory equivalence agreements with non-EU countries.

Equally critical will be the grandfathering of mutual rights of access and regulatory equivalence that are already recognized by the EU today, for example, in capital and payments regulation. (Indeed, the UK should consider seeking inclusion in ongoing regulatory projects to improve European financial services, such as the Capital Markets Union and the Single Euro Payments Area.) In addition, the UK should continue its engagement with the formulation of global financial regulations through international forums such as the Basel Committee on Banking Supervision.

Finally, issues such as data sharing, tax, judicial/insolvency processes and access to talent will need consideration. Securing sensible agreements in these areas will be important for all industries, not just financial services.

Even if all of this is achieved, Brexit will have material legal and operational implications for financial firms in the UK and EU. They must be given ample time to make the required changes: five years, at least. If there is no certainty around the transition period; the outcomes in terms of relocation and reduction in revenues, tax, GVA and employment could be the same as in the low access scenario, regardless of the regulatory outcome, as firms will be most concerned with ensuring continuity in their ability to service customers.