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Regulatory equivalence report: a detailed examination

Peter Snowdon
Anushka Herath

On January 12, 2017, Norton Rose Fulbright LLP published a report on regulatory equivalence. The report had been commissioned by the Financial Services Negotiation Forum for the purpose of sending to the UK Government, policymakers and negotiators to encourage a pragmatic, pro-business and pro-growth approach to UK-EU negotiations for Brexit, as well as to other international bodies. UK financial services firms, trade bodies and pro-business groups within EU Member States may also find the report of interest.

The objectives of the report were to examine the approach to equivalence in Europe and elsewhere and to raise awareness of a need for international consensus on the interpretation and measurement of equivalence. The report found that the patchwork nature of regulatory equivalence provisions means that, for the UK financial services industry, the current European model of equivalence will not provide a solution which will replace the benefits of passporting in their entirety. However, there are some common features (such as cooperation arrangements, comparable regulatory frameworks and data sharing) which suggest that a framework of equivalence could be established to ensure a harmonised approach to equivalence in UK-EU negotiations.  The report examines approaches to the interpretation and measurement of equivalence and suggests a bespoke model for equivalence known as the ‘building blocks’ model to enable UK financial services firms to access the European market, using established concepts of equivalence in Europe, across the globe and in international bodies to deal with some of the recognised challenges in the current form of equivalence.

In particular, the report makes the following recommendations in relation to UK/EU negotiations on equivalence:

  • There is a need for a clear, unambiguous definition of equivalence, which is currently lacking in European legislation.
  • Linked to this, there is a need for clear, definitive benchmarks for the assessment of equivalence determinations by the Commission, which could draw upon international standards in order to provide a ‘dynamic’ version of equivalence which mitigates the risk of equivalence being unexpectedly withdrawn.
  • Building upon the current European approach to equivalence, it is pragmatic and mutually beneficial to both the EU and UK to utilise existing concepts and established precedents to augment European equivalence through using sector-specific procedural tools and interim solutions as described in the building blocks model.
  • Negotiating the UK’s exit from the EU could benefit from a less politically charged debate by replacing the emotive terms of ‘passporting’ and ‘equivalence’ with a more politically neutral term, such as by negotiating the ‘relationship framework’ between the UK and EU.

The report also briefly considers some of the wider opportunities for the UK in a post-Brexit world, in particular considering a likely period of regulatory reform in the US under President-Elect Trump. Known as the ‘triangulation framework’, the report examines whether the UK could establish itself as a hub for financial services catering to the European, domestic and US markets.

A link to the full report can be found here together with a link to our press release.

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