Financial services industry participants are increasingly focusing on the detail of what the UK Government's Chequers proposal, and the initial EU27 reaction to it, will mean in practice for their business's ability to access EU27 markets following Brexit. It seems clear that the Chequers proposal will not amount to a continuation of the existing passporting regime and that some degree of change is inevitable. However, for many businesses the impact of that change will vary significantly depending upon whether the EU27 is willing to agree to the UK Government's proposal of so-called enhanced equivalence, going beyond the existing level of access that some (non-EU) third country firms currently enjoy; whether the EU27 will offer only existing equivalency arrangements (putting UK firms in a similar position in terms of EU27 access to, for example, firms located in the USA); or, whether, post-Brexit, UK financial services firms will face a truly hard Brexit with no access rights at all unless the UK first goes through a lengthy assessment process.
In our note, we examine this and other key legal issues arising from the UK Government's white paper.
In particular, a new economic and regulatory arrangement for financial services is proposed which will not replicate the passporting regime. The UK Government recognises that the EU would not accept continued mutual recognition of regulatory regimes and therefore envisages a bilateral equivalence arrangement between the UK and the EU in which each party will have autonomy over decisions regarding access to its market. Importantly, the Government wants such arrangements to go beyond existing third country equivalence regimes (which cover more than 30 overseas jurisdictions). It does not believe that such regimes are sufficient to deal with the deep interconnection of the UK’s and EU’s financial markets and therefore seeks an expanded “enhanced equivalence” regime.