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The Fed has just raised interest rates; the crisis must be over; so we can bin all the crisis “governance” stuff! Or can we? No. The lessons learnt in the heat of the crisis are now hard-coded into the genetic structure of global financial regulations and cannot just be ignored if they happen to be an inconvenient truth. They may be particularly inconvenient for British advocates of leaving the EU and converting British financial regulations into a system based on the general principles laid down by international bodies. Recently, Commissioner Hill pointed out this `inconvenience’ – graphically and clearly. [...]
To avoid a nightmare of practicalities, the answer from the EU was that it would accept the operations of financial institutions providing they were subject to rules that are “equivalent” to those of the EU. This concept gives effect to the G20 spirit of close co-ordination and consistent implementation. The EU cannot abandon this approach without abandoning its commitment to the whole G20 process.
“In certain cases the EU may recognise that a foreign legal, regulatory and/or supervisory regime is equivalent to the corresponding EU framework… Typically, equivalence provisions require verifying in an assessment that a third-country framework demonstrates equivalence with the EU regime when it comes to:
1. having legally binding requirements,
2. having effective supervision by authorities,
3. achieving the same results as the EU corresponding provisions and supervision (outcome-based analysis).”
The third, outcome-based analysis, may be the one that is highly inconvenient for Brexiteers if they genuinely intend to move UK regulations away from slavishly following evolving EU rules. In a remarkably frank intervention, Commissioner Hill spoke at a recent “FT Future of Europe Breakfast”. He was particularly firm and clear on some Brexit issues that are key for the future of the City of London. “Some say that if there is Brexit, there is no risk because the UK will get the same access (or even better). This is a complete and fundamental misunderstanding of how the rules work. They are misleading about the consequences for business models. People need to be honest… you cannot have your cake and eat it… I do not believe there is a respectable argument that you can leave and have the same access as now…”
These are powerful words for the Commissioner – a former Leader of the House of Lords – to use in the heart of the City at a time when the Brexit debate is strengthening and the future of the City of London is fast becoming a key element in the negotiations. Be “equivalent” or be “out”.
Full article for consultancy clients here
