(Bloomberg) -- The U.K. should expect a “rigorous” assessment of its regulations before financial firms will be allowed to do business in the European Union after Brexit, according to a draft document to be presented by officials in Brussels later this month.

The European Commission, the EU’s executive arm, is set to lay out its most recent approach to the so-called equivalence system, which allows foreign financial firms to do business in the bloc if regulations in their home country are deemed tough enough. Officials have made it clear that this system is all that’s on offer for the City of London after the U.K.’s departure.

“The determination of the equivalence of a third-country regime results from a rigorous case-by-case assessment,” according to the document. Without mentioning the U.K. by name, it said that “high-impact” countries with tighter links to the EU’s financial system “present a more significant set of risks which the commission will need to address.”

Sam Woods, the top banking regulator at the Bank of England, has said that a “British style” of oversight with less detailed legislation and more flexibility granted to regulators could improve the system. But that approach could be at odds with keeping firms’ access to the EU if Brussels finds that the U.K. has drifted too far from the bloc’s regulations after Brexit.

The European Commission declined to comment on the document.

In the draft, the commission also highlights the need to monitor foreign rules continuously, and the fact it can suspend or withdraw equivalence decisions as necessary.

U.K. firms have pointed to the possible withdrawal of recognition at short notice as one of several shortcomings of the EU system. Banks are in the process of shifting staff and more than 1 trillion euros ($1.13 trillion) in assets into the EU to maintain business in the bloc.

The disadvantages -- for outsiders -- of the EU’s equivalence system was highlighted last month during a standoff with Switzerland. Frustrated over slow progress on an unrelated political accord with the country, the EU let a temporary recognition of Swiss stock exchanges expire, leaving investors to adapt to a new legal framework.

--With assistance from Silla Brush.

To contact the reporter on this story: Alexander Weber in Brussels at aweber45@bloomberg.net

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Nikos Chrysoloras, Emma Ross-Thomas

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