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    Bulletin 120 SL Article1

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    The EU is reluctant to include mutual recognition of financial services regulation in a trade deal with the UK after Brexit as it risks undermining the single market. While the EU proposed some regulatory cooperation in TTIP negotiations, including eventual "mutual reliance" of rules, it would not amount to full mutual recognition. The UK should not take past discussions as evidence the EU will concede to its demands, as regulators want to maintain rule-making autonomy. Instead, the UK should engage with improving the EU's equivalence regime to ensure market access, and pursue an ongoing regulatory dialogue, while accepting the EU will not compromise on the single market framework.

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    Bulletin 120 SL Article1

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    TBP_Think_Tank
    14K views2 pages
    The EU is reluctant to include mutual recognition of financial services regulation in a trade deal with the UK after Brexit as it risks undermining the single market. While the EU proposed some regulatory cooperation in TTIP negotiations, including eventual "mutual reliance" of rules, it would not amount to full mutual recognition. The UK should not take past discussions as evidence the EU will concede to its demands, as regulators want to maintain rule-making autonomy. Instead, the UK should engage with improving the EU's equivalence regime to ensure market access, and pursue an ongoing regulatory dialogue, while accepting the EU will not compromise on the single market framework.

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    Bulletin 120 Sl Article1

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    Bulletin 120 Sl Article1

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    The EU is reluctant to include mutual recognition of financial services regulation in a trade deal with the UK after Brexit as it risks undermining the single market. While the EU proposed some regulatory cooperation in TTIP negotiations, including eventual "mutual reliance" of rules, it would not amount to full mutual recognition. The UK should not take past discussions as evidence the EU will concede to its demands, as regulators want to maintain rule-making autonomy. Instead, the UK should engage with improving the EU's equivalence regime to ensure market access, and pursue an ongoing regulatory dialogue, while accepting the EU will not compromise on the single market framework.

    Copyright:

    © All Rights Reserved
    14K views2 pages

    Bulletin 120 SL Article1

    Uploaded by

    TBP_Think_Tank
    The EU is reluctant to include mutual recognition of financial services regulation in a trade deal with the UK after Brexit as it risks undermining the single market. While the EU proposed some regulatory cooperation in TTIP negotiations, including eventual "mutual reliance" of rules, it would not amount to full mutual recognition. The UK should not take past discussions as evidence the EU will concede to its demands, as regulators want to maintain rule-making autonomy. Instead, the UK should engage with improving the EU's equivalence regime to ensure market access, and pursue an ongoing regulatory dialogue, while accepting the EU will not compromise on the single market framework.

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    On Brexit, TTIP and

    the City of London


    by Sam Lowe

    The EU was keen to include financial services in TTIP, the proposed


    trade agreement with the US. Is its reluctance to do so with the UK mere
    hypocrisy?
    The EU has repeatedly said that, unless the UK just as the UK was always going to propose
    changes its red lines and decides to stay in the something to this effect on financial services, the
    single market, financial institutions based in the EU was always going to say “no”.
    UK should expect to be treated post-Brexit in
    the same way as those based in any other non- Mutual recognition of financial services
    member country. In practice this will mean, at regulation, as proposed by the UK, goes against
    best, operating under the meagre provisions of the single market framework which increasingly
    the EU’s equivalence framework, which in certain relies on harmonised rules, minimum standards,
    areas allows for financial services providers to continual co-operation and overarching
    sell into the EU from outside, but which can supranational oversight and enforcement.
    be unilaterally rescinded by the European This approach gives national regulators the
    Commission with 30 days’ notice. Most recently, confidence that foreign banks under the purview
    Michel Barnier asked an audience at the EU- of other EU member-states are not exposing
    Western Balkans summit in Sofia: “why would the their financial system to excessive risks or ripping
    equivalence system, which works well for the US off their consumers. Privileged market access
    industry, not work for the City?” will not be on offer to the UK, which wants to
    extricate itself from the harmonised rule book
    In contrast, the UK has put forward a proposal and associated oversight.
    based on mutual recognition, whereby both
    the UK and the EU would accept each other’s Furthermore, if the EU were to allow UK-based
    rules as equivalent in outcome even if specific institutions to operate in its market on the basis
    provisions were different, and the outcomes were of mutual recognition of outcomes, it would run
    achieved in a different way. That would allow the risk of undermining its rule-making autonomy
    cross-border trade to continue much as it does and the integrity of the single market. Companies
    now. Importantly, revocation of market access trading out of the UK would in effect be able to
    would be determined on the basis of consultation operate across the single market on the basis of
    and set criteria, thereby giving institutions and a different rule book, offering opportunities and
    investors greater security and confidence. This incentives for the UK to engage in regulatory
    has been welcomed by many in the City. But competition. Under the EU’s existing equivalence
    INFO@CER.EU | WWW.CER.EU
    CER BULLETIN
    ISSUE 120 | JUNE/JULY 2018 3

    regime, rulings are largely confined to types of The UK should not take this non-paper as
    financial activity that are deemed to pose low evidence that the EU will concede to British
    systemic and consumer risk. demands on mutual recognition in financial
    services post-Brexit. These unpublished proposals
    Some in the UK, including the prime minister, were a product of a post-financial crisis era in
    have pointed to the Transatlantic Trade and which regulators were under pressure to increase
    Investment Partnership (TTIP), the stalled EU- international co-operation; even so, they are
    US FTA negotiations, as an example of past EU vague about the extent of mutual recognition
    willingness to include financial services in a trade that the EU would consider. While the non-paper
    agreement. It is true that financial services were suggests EU sentiment could one day shift
    to be covered in TTIP, just as they are in all EU back towards being more favourable to mutual
    trade agreements. They will inevitably be in any recognition, it should not be taken as indicative of
    future EU-UK free trade agreement, too. But the where the EU is now in the Brexit negotiations, or
    financial services provisions contained in EU FTAs will be any time soon.
    do little more than reaffirm the EU’s market access
    commitments and reservations as already laid out Behind closed doors, member-state
    in its WTO General Agreement on Trade in Services representatives say that comprehensive mutual
    schedules, which do not amount to much. recognition is not something an FTA can allow
    in and of itself. It would also require the EU to
    The one area where Michel Barnier has indicated change many of its laws, which provide certain
    the EU is prepared to up its offer is with regard to rights only to financial institutions incorporated
    the right of establishment. This will further reduce within the territories of member-states of the
    the already low barriers facing UK-based services EU and the European Economic Area. In itself,
    providers wishing to set up within a member- this would not be an impossible hurdle to clear,
    state in order to service the EU. It will also lock in but it would require the will to offer mutual
    existing rights of establishment, guarding against recognition in the first place, which is currently
    future rollback. But this will not give the City absent on the continent.
    access from London and firms will still need to
    establish subsidiaries in the EU. The EU is amenable to suggestions as to how to
    improve and expand the scope of its equivalence
    TTIP could have potentially gone further on regime. Instead of pushing for the pipe dream
    regulatory co-operation in financial services. of mutual recognition, the UK and the City
    Officially, the EU proposed a continuing should engage more readily with the current
    regulatory dialogue that would have ensured discussions on this issue, including clearer
    consultation between the EU and US prior guidelines concerning the withdrawal of an
    to new financial regulations; a co-ordinated equivalence ruling and a longer notice period of
    approach to the implementation of international withdrawal. The UK should also make the case
    standards; a joint review of existing rules to for including an ongoing, structured regulatory
    try and identify unnecessary barriers to trade; dialogue on financial services in the future EU-UK
    and an ongoing commitment to scope out partnership, leaving open the possibility that
    potential future equivalence rulings. The UK new opportunities for improved market access
    could realistically aspire to something similar, but may emerge.
    these arrangements should not be confused with
    comprehensive mutual recognition. Beyond the specifics of the future relationship, in
    the short-to-medium-term a degree of honesty
    There is, however, slightly more to the story. and humility is warranted. The EU line on financial
    Although they have never been published, the EU services is not going to crack, and the member-
    did table some informal proposals on regulatory states do not believe they need the City as much
    co-operation in financial services during the fifth as the City believes they should. If the UK is
    round of the TTIP negotiations, which offered unwilling to change its Brexit negotiating red
    more detail. In its non-paper the EU proposed lines, and in particular its plan to leave the single
    a process that could eventually lead to ‘mutual market, the only way for a UK-based financial
    reliance’ of regulations and future rules, although institution to guarantee its continued ability to
    mutual reliance was not fully defined. This does service EU-27 customers post-Brexit is to establish
    suggest that the EU was, at one point at least, itself within the EU-27. And the EU is rolling out
    considering something in the context of an the red carpet.
    FTA that appears similar to mutual recognition.
    However, other sections of the non-paper
    muddy the water, such as a section clarifying
    that any party may rescind equivalence decisions Sam Lowe
    unilaterally, but should consult beforehand. Research fellow, CER @SamuelMarcLowe

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