UK and EU pen deal on financial services cooperation

Elizabeth Budd of Pinsent Masons was commenting after the UK chancellor, Jeremy Hunt, and EU commissioner for financial services, Mairead McGuinness, signed a memorandum of understanding (MoU) (4-page / 92KB PDF) on Tuesday that commits the UK and EU to “pursue a robust and ambitious bilateral regulatory cooperation in the area of financial services”.

A new Joint EU-UK Financial Regulatory Forum will be at the heart of the new arrangements. Meeting twice a year, the forum will, according to the MoU, “serve as a platform to facilitate structured regulatory cooperation in the area of financial services”.

Among the issues that could be discussed at the forum include macro-prudential developments and financial stability risks, as well as the implementation of international standards and efforts to combat money laundering and terrorist financing. Regulatory developments, including the development of supervisory frameworks, and matters of equivalence, are among the further topics that could be addressed by the forum.

Equivalence is the process whereby the European Commission formally recognises that the regulatory or supervisory regime of a non-EU country is equivalent to the corresponding EU regime. This allows the EU to rely on supervised entities' compliance with equivalent rules in a non-EU country and, from a business perspective, lets non-EU authorised firms that comply with the non-EU rules provide services, products or undertake activities within the EU. Since Brexit, the UK government has pursued enhanced equivalence between it and the EU in the area of financial services.

Budd said: “This MoU is a welcome building block not only for showing how much UK-EU relations have improved, but also for creating a joint forum to allow parties to exchange views and better understand the other’s position. The forum will meet every six months but in the background there will be less formal exchanges at senior technical and expert level to help ensure that the forum can operate from a properly informed position.”

“The forum’s purpose is not to restrict what the UK or the EU may decide to implement within their own jurisdictions but rather to permit discussion on any issue relevant to regulatory cooperation in the area of financial services. The MoU identifies certain matters that will be within the remit of the forum including the sharing of information on regulatory developments which will allow for a timely identification of potential cross-border implementation issues as well as considering issues around potential or actual market fragmentation. In the years since Brexit, the barriers to entry have become clear and we know that the reform of the UK’s wholesale markets is front and centre of the UK government and regulators’ current plans,” she said.

“As important, or perhaps more so, the forum will provide an arena for discussions on deference or equivalence – both the granting of equivalence and its removal or restriction. Whilst many businesses have learned to operate without equivalence, the potential for the forum to assist in achieving that elusive goal can only be beneficial,” Budd said.