06 November 2016

Financial Times: EU reconsiders financial market access rules

Brussels is reconsidering how it grants EU market access to overseas financial firms, casting doubt over the use of the bloc’s “equivalence” arrangements as a fallback option for the City of London after Brexit. 

No decisions have yet been taken by the European Commission about the regime, which extends limited access rights to non-EU jurisdictions that have rules deemed equivalent, such as the US. But senior officials are re-examining existing equivalence rules, with an eye to streamlining and strengthening the approval process so it is more rigorous for systemically relevant jurisdictions. 

Any move to tighten the access regime would signal that Brussels will let Britain take nothing for granted in negotiations to leave the EU. It would also be a blow to the US and more than a dozen jurisdictions, who fear approval for their pending applications will be waylaid by Brexit politics. 

One senior EU official said equivalence “is not automatic and is not a right” and was bound to be reconsidered in light of Brexit. Another official noted that the patchy criteria needed to be clarified. The aim would be to create a more transparent process and recognise that deep financial interaction, such as with the US or UK, requires deeper equivalence checks. 

The EU’s equivalence regime is relatively new, inconsistent from law to law, and largely untested. [...]

Although it covers only a narrow range of financial activities, some City institutions and British officials see equivalence as a last-resort to preserve basic access, particularly for trading, investment and clearing services. Investment banks in particular are bracing for the Brexit-related loss of more comprehensive passporting rights, permitting the provision of financial services across the EU. 

A senior French official who has discussed the issues with the commission said: “They are already reviewing all of this. The equivalence rules were never envisioned for the City.” [...]

British ministers have admitted that the uncertainty around equivalence — and the fact that rights can be abruptly withdrawn — means it “wouldn’t necessarily work” for international banks in London. Mark Garnier, a trade minister, told Bloomberg that Britain would probably seek “a special hybrid” that was better than equivalence but different from a passport. 

However EU officials note any permanent “hybrid” arrangement would only be possible in a full trade deal, completed years after the UK has left the union. For this reason the existing equivalence regime would be an important basis for any transition arrangements, which banks see as vital for an orderly exit. Mark Carney, Bank of England governor, has described equivalence as the “way forward” in global financial regulation. [...]

Full article on Financial Times (subscription required)

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