The Financial Times has reported that the UK and EU have made significant progress on the text on an equivalence deal for financial services to be included in a potential statement about future relations. The report expresses surprise from the EU’s side that an area which was expected to be highly contentious has proven to be relatively straightforward with Theresa May "scaling back her ambitions" for access to the EU’s financial services market being credited for the swift progress.
An equivalence deal would operate on the basis of independent assessments made by both EU and UK regulators on the equivalence of each other’s regulatory regime. One of the weaknesses of an equivalence deal would be that it would allow the EU to potentially withdraw any equivalence agreement with as little as thirty days’ notice. To counteract this, the UK has sought assurances in relation to how this system would work in the UK’s unique situation and is requesting equivalence to automatically be granted in all areas that are currently covered by the EU’s equivalence regime and assessments in areas that are not such as commercial banking and corporate lending.
Whilst this is positive news for the UK financial services sector there is little indication that the UK’s requests will be granted, with the Financial Times noting that there is significant opposition from both France and Michel Barnier to the extension of the equivalence regime the UK requests. Furthermore any such further detail would, according to the Financial Times, not make it into the text on future relations between the UK and the EU; and whilst this text is welcome, it will not operate as a binding agreement but will merely be a political statement of intent.
There is also little indication as to what would occur if there is no withdrawal agreement between the EU and the UK. In any event, an equivalence deal would not provide the UK the same access as it currently enjoys as a member of the single market. This is because, whilst equivalence permits third country passporting rights to be switched on under key European financial services legislation, including MiFID II, those rights fall significantly short of the passporting rights that the UK currently benefits from as a full Member State of the EU. Financial services firms should therefore continue their Brexit planning and implementation work.
“This has gone from being one of the most feared paragraphs [of the declaration] to something that is no longer so daunting to do,”