Globalisation may have made London banker to the planet, according to a recent New York Times editorial but, with Article 50 invoked, its position is under threat.

As the clock ticks towards the March 2019 deadline for negotiating Britain's exit from the European Union, uncertainty abounds. Adding to this uncertainty is next month's general election, when the Conservative government hopes to increase its majority.

But while little may be clear in terms of the negotiations, on one point there is absolute clarity: the urgent need for the financial services sector to plan ahead.

The knock-on effect for law firms is that they are already seeing significant demand for complex regulatory advice from these coveted banking clients.

"There are two broad strands of advice that we're particularly involved in," says Damian Carolan, head of London financial services regulation at Allen & Overy (A&O). "One is contingency planning; the other is around advocacy, or trying to position outcomes – a range of papers are out there regarding the potential lobbying position of the UK and how that might be best positioned to suit the financial services industry."

Andrew Thomas, co-head of global banking at A&O, adds: "The most important thing for us is to understand what financial institutions are trying to achieve: partnering up with them, getting under their skin. The regulatory advice we give is truly boardroom – very high-level strategic advice about where you are going to allocate your resources."

Many firms have Brexit groups in place coordinating and, where necessary, recalibrating strategy with their City clients. Invariably, this involves a core team of lawyers dedicated to advising on a spectrum of Brexit-related issues.

An established financial institution in the UK has got to have a plan B in the event of Brexit without an agreement on passporting

Brexit is "a constant source of concern and discussion", confirms White & Case London executive partner Oliver Brettle. "For an established financial institution in the UK, it has got to have a plan B in the event of a Brexit without there having been agreement on passporting, which means that they have got to set up operations in the remaining EU so that they have an EU presence and can do business easily on Brexit day plus one. They just can't take the gamble."

Kirstie Hutchinson, a banking and finance partner at Macfarlanes, echoes the point: "We are helping clients with significant contingency planning. It tends to be behind the scenes without open comment, while keeping a clear and close eye on government, regulators and competitors."

Owen Lysak, a newly promoted banking and finance partner at Clifford Chance, says the deadline for preparations "is not two years in practice, because you're not going to wait until the very last minute to start using whatever your contingency plan is". He adds: "If you're relocating to a new entity in the remaining EU, then you want to start using that ahead of time to ensure that there is a full smooth transition."

The World Trade Organisation is no help at all

He suggests that banks are being pressured by both clients and investors to have their contingency plans fully operational: "That translates into less than the two years because you want to give them comfort that you have everything ready to go."

The central concern for most financial institutions is passporting rights. "Nobody sees the loss of passporting as a good thing – that's probably true on both sides," says Rachel Kent, head of global financial institutions at Hogan Lovells. "It was described to me by one senior Brussels official as a lose-lose situation."

Hutchinson argues that the potential impact of passporting procedures can be split across three categories of lending institution: big banks, smaller banks and credit fund lenders.

For big banks, says James Greig, partner at White & Case, "it's not a possible loss of passporting rights – they are assuming that they will be lost, period".

He continues: "They are therefore planning how to ensure continuity of service to clients, given the fact that they might have to shift books of business or client relationships. Big clients are already planning with a view to assuring continuity of access for their clients to the markets that they want to be serviced in. Smaller banking clients are still looking."

For deposit-taking institutions without an established local presence, but still wanting to lend and do business in Europe, "smaller banks seem likely to have to go through a more demanding process", says Hutchinson.

However, Martin Bartlam, international head of finance and projects at DLA Piper, believes that "banks are becoming more resigned to the issues". He adds: "There's an element of mitigating their positions, given that a lot of them already have some sort of business entity, branch, or subsidiary in EU member states."

Carolan explains the evaluation process: "It's not that complex: you look at your business and your geographical client base, you effectively analyse the business which is reliant on current EU passporting rights of one sort or another, under one form of legislation or another, and then do a revenue impact analysis.

"It starts from an assumption of an outcome at the worst end of the scale in terms of our resulting relationship with Europe. Everyone at this stage is paying for an option, planning for the build-out of an EU vehicle, but not to move their business lock stock and barrel."

The bottom line for banks is therefore trying to future-proof their operations against a worst-case scenario that may well not happen. But it might. And if it does, that means World Trade Organisation (WTO) rules will apply.

"The WTO is no help at all," says Greig. "Under WTO, we lose passporting and there is no WTO right that would allow us to argue for its continuity. Ending up with WTO rules for the provision of financial services would leave us effectively excluded from the EU for all practical purposes."

There is a balance between not wanting to lose potential first-mover advantage and not wanting to suffer first-mover disadvantage

However bleak that possibility, banks are "keen to mitigate against the degree of disruption and relocation that is involved", says Kent. "So they are looking at, and there is reaction to the fact that they are looking at, moving a smaller number of people to alternative jurisdictions than they might have had to service the business in London under their existing model." She describes the next few months as "absolutely critical".

Media reaction has sometimes been alarmist when plans go public: JP Morgan is in talks to buy a Dublin office building large enough to house more than 1,000 staff; Goldman Sachs is moving hundreds of bankers to Frankfurt and Paris; HSBC and UBS could each transfer 1,000 banking jobs from London to Paris; while Citigroup has said that its contingency for a hard Brexit would require "relocating certain client-facing roles to the EU".

Meanwhile, Lloyds – the only major British lender that does not have a subsidiary in another EU member state – has decided to convert its Berlin branch into a European hub.

Hutchinson (pictured right) offers the following critique on how and where banks are positioning themselves: "There is a careful balance to be struck, between not wanting to lose potential first-mover advantage and not wanting to suffer any first-mover disadvantage. People are playing their cards carefully and close to their chest."

According to Carolan: "Frankfurt is almost always on the very short list of options. You can run a very credible European business that does what is necessary in a European context without having a massive headcount. But it needs to be material – a credible and substantive presence."

Thomas adds: "Many funds clients are less troubled by Brexit because they have long positioned their operations in London as well as in Luxembourg, Frankfurt, Paris, or wherever."

Neel Sachdev, a banking and finance partner at Kirkland & Ellis in London, argues that some non-bank players will be relatively unaffected: "Unlike banks, who need to plan ahead for the possible loss of passporting rights, private equity clients can adapt quickly to a shifting market and regulatory environment. Many sponsors have considerable funds to deploy and their investing will continue, Brexit notwithstanding."

People are going to stay in London – it's a brilliant city

Greig develops the point. "Those financial institutions which are most concerned are less dominant in terms of the day-to-day business transaction activity in London than they once were," he says. "Why? Because alternative sources of capital – sovereign wealth funds, private equity funds, hedge funds – are proportionately more important than they were in 2006-07. Those sources of finance are much less tied to particular geographies and regulation. For them, the fiscal regime of where they are is rather less important."

Bartlam suggests that most people involved in financial regulation think that "two years to get to a final position on the things we're dealing with seems incredibly short".

Because a deal may well take more time to achieve, transitional arrangements are therefore seen as particularly time-critical.

"The longer companies have to proceed down the route of following their contingency plan without them, the less helpful those transitional arrangements will be and the more likely they will simply follow through with their plan," says Kent.

To those who doubt whether the City of London will survive intact from the undoubtedly fraught and complex negotiations that lie ahead in the coming months, a report from Freshfields Bruckhaus Deringer offers some hope.

The report, commissioned by TheCityUK, suggests that the UK-based financial services sector as a whole aims to keep as many activities as possible in the UK, even though companies have to make contingency plans based on a worst-case scenario.

At White & Case, Brettle delivers an upbeat response: "We have already seen announcements made by banks taking new headquarters space in London, other banks taking further space. So it's not all panic on deck.

"People are going to stay in London. It's a brilliant city, this is one of those cities where people want to be. London isn't going to stop being a desirable city for people to be in any time soon. There is a lot of scaremongering, and we don't want to get ourselves into the position where that scaremongering becomes a self-fulfilling prophecy."