Drawing on the EGOV briefing “Third-country equivalence in EU banking legislation” updated in July 2017, this briefing provides an insight into the latest regulatory developments on equivalence, including elements of the on-going ESA review, the Investment Firm Review, and EMIR 2.2 that are being discussed at Parliament and Council.
The EGOV briefing “Third-country equivalence in EU banking legislation” analysed in detail the key differences between:
‘passporting’ rights for firms established in a Member State or in an EEA country (enshrined in secondary legislation), and
‘equivalence’ regimes for third countries (provided for in financial services legislation) that may be discretionarily activated or revoked by the Commission.
‘Equivalence’ refers to a process whereby the European Commission assesses and determines that a third country’s regulatory, supervisory and enforcement regime is equivalent to the corresponding EU framework. That recognition makes it possible for authorities in the EU to rely on third country entities’ compliance with the third country framework which has been deemed ‘equivalent’ by the Commission.
The Commission has recently proposed regulatory changes to enhance some EU equivalence regimes: in September 2017 as part of the ESA review, in December 2017 as part of the Investment Firm review, and in June 2017 in relation to a review of EMIR. Those proposals are being discussed at Parliament and Council.
The ECON Committee has tabled an own-initiative report on relationships between the EU and third countries concerning financial services regulation and supervision (see draft report dated 4 April 2018, Rapporteur Brian Hayes).
When the UK will become a third country - and without prejudice to any transition that may be agreed upon as part of the withdrawal agreement - EU legislation providing ‘passporting’ rights within the EU will no longer apply to financial services provider established in UK.
In the context of firms’ preparedness for the Brexit scenario, the Commission has recently published a number of notices outlining the legal consequences attached to the loss of ‘passporting’ rights in different financial services legislation, including banking, investment services, derivatives and asset management.
As emphasised by the Commission, firms will need to get a new authorisation (i.e. a new legal entity established in the EU) from EU competent authorities to fully keep the benefit of the internal market (i.e. ‘passporting’ rights)8. This is without prejudice to equivalence decisions that may be adopted by the EU in accordance with specific sector legislation.
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