A number of equivalence decisions in respect of EEA member states have been laid in Parliament this week. The full list and further details are available here.
By way of reminder: equivalence is, in short: an autonomous mechanism by which one jurisdiction can recognise relevant standards in another jurisdiction as equivalent to their own … The exact impact of an equivalence decision varies by sector (see the newly published Guidance Document for the UK’s equivalence framework for financial services for a definition). As a concept, it spans a wide variety of purposes in EU legislation, with market access accounting for only a small number of equivalence assessments.
So, each of these new decisions should be assessed on its own merits. The European Market Infrastructure Regulation (Article 2A) Equivalence Directions 2020, for example, will enable UK firms to continue to treat derivatives traded on EEA regulated markets as exchange-traded derivatives rather than OTC derivatives. The Benchmarks Regulation Equivalence Directions 2020 will enable EEA benchmark administrators to be added to the FCA’s benchmarks register, which means they will be able to provide benchmarks to supervised entities in the UK. Also announced this week were equivalence decisions relating to onshored versions of Solvency II, the Capital Requirements Regulation and the Credit Rating Agencies Regulation, among other areas.
It’s a friendly gesture from the UK, but it's not an all-inclusive package. Notable by its absence is a decision regarding market access under MiFID II (although, declaring EU member states to be equivalent for these purposes under UK law would arguably subject their firms to a more onerous compliance regime than exists under the Overseas Persons Exclusion).
Most of the decisions will be made under powers in the Equivalence Determinations for Financial Services and Miscellaneous Provisions (Amendment etc) (EU Exit) Regulations 2019 (SI 2019/541). Each decision will come into force immediately following the end of the transition period.
After the end of the transition period, we can expect the UK to adopt the equivalence process and run with it, in accordance with the principles and processes set out in the Guidance Document. Those monitoring developments in this space will be aware that the EU Commission’s role in making equivalence determinations for overseas jurisdictions has been replicated and transferred to HM Treasury, with technical advice and support to be provided by the UK financial regulators, as appropriate. The Guidance Document makes all the right noises about a technical, outcomes-based framework that prioritises “stability, openness and transparency” (subject to a right to revoke existing equivalence determinations as a last resort) and operates “in a way that ensures and supports financial stability, market integrity and consumer protection.”
Alluding to the possibility of a future divergence between the EU and UK frameworks for equivalence, it notes: we will keep the scope of services covered by equivalence under review to ensure that the UK’s framework reflects the realities of cross border business models and the globally interconnected nature of the UK’s financial markets.
The UK has not ruled out additional decisions for the EEA “as it continues to believe that comprehensive mutual findings of equivalence between the UK and the EEA States are in the best interests of both parties” but for the time being awaits clarity from the EU about its intentions.
Nearly all of the existing EU equivalence determinations have been incorporated into UK law and will continue to have effect until and unless they are revoked under the review and withdrawal process outlined in the Guidance Document.
