In a move which could damage Britian’s financial sector in a post-Brexit environment, the EU is reported to be considering proposals which toughen up the current rules of access via the EU’s “equivalence” regime. The EU currently allows limited access privileges to some non-EU countries which are considered to have “equivalent” regulatory regimes and reporting standards. Some had hoped that by using the regime the UK could continue to have cross-border trade with the EU financial markets.
Speaking to the FT, a senior EU official stated that equivalence “is not automatic and is not a right”, and should be reconsidered in light of Brexit, whilst a senior French official is reported to have warned that the regime was never envisioned for the City of London. Officials are reconsidering the current rules with an eye to toughening the approval process to make it more rigorous for systematically relevant jurisdictions, acknowledging that the more complex the financial interaction, such as that with the US or potentially with the UK, requires deeper equivalence checks. Any move to strengthen the regime would act as a warning to Britain not to have any assumptions of its rights during the Brexit negotiations.
Whilst the regime only covers a narrow range of financial activities, many London based institutions had seen the rules as preserving basic access rights until a hybrid arrangement of passporting/equivalence rights could be sought.