Following a leak in the press, the UK government has published the draft Political Declaration setting out the framework for the future UK-EU relationship (the Framework). The draft Framework has been agreed at negotiators’ level and agreed in principle at political level, subject to endorsement by leaders. It represents instructions to negotiators as to the scope and terms of the future UK-EU relationship. A high-level summary of the most relevant provisions for financial services is set out below.
Section III addresses "Services and Investment", including but not limited to financial services. It proposes the objectives and governing principles of concluding:
“ambitious, comprehensive and balanced arrangements… respecting each Party's right to regulate,…[aiming at]…substantial sectoral coverage, covering all modes of supply and providing for the absence of substantially all discrimination in the covered sectors, with exceptions and limitations as appropriate”. (para 30)
The draft framework notes that:
“The arrangements should include provisions on market access and national treatment under host state rules for the Parties' service providers and investors, as well as address performance requirements imposed on investors. This would ensure that the Parties' services providers and investors are treated in a non-discriminatory manner, including with regard to establishment….The arrangements should allow for the temporary entry and stay of natural persons for business purposes in defined areas.” (para 31)
It is unclear how this statement (which covers all services, not just financial services) should be interpreted. On a conservative reading, in a financial services context, it could suggest UK firms may be subject to “host state rules” of the EU member states in which their clients are based (perhaps at the discretion of the host member state). It should be noted that this application of host state rules is not currently the case under the passport available to third country firms following an equivalence determination under Article 46 MiFIR, although certain EU regulators have suggested an amendment to that effect.
Section IV addresses "Financial Services" specifically and proposes that the EU and UK should:
- aim to conclude equivalence assessments before the end of June 2020
- have transparency and appropriate consultation in the process of adoption, suspension and withdrawal of equivalence decisions
- keep their respective equivalence frameworks under review, and
- have the ability to take equivalence decisions in their own interest.
It is unclear whether equivalence would cover all of the existing provisions already in legislation (eg MiFIR, EMIR, CSDR, AIFMD etc). It is also unclear whether it would be limited to these or be expanded in accordance with the principle of “substantial sectoral coverage” referred to in Section III. The “review” alluded to in the third bullet-point above could be helpful in expanding coverage (eg to banking and insurance generally). However, it should be noted that a “review” could also lead to additional restrictions, for example (as discussed above in relation to MiFIR) the application of host state conduct of business rules.
Overall, the draft Framework provides little new concrete information. It reiterates the intention of an equivalence-based relationship (with determinations by June 2020), but does not clarify its scope. It leaves open the possibility of amendments to the current equivalence frameworks. It seeks to provide comfort for firms in relying on an equivalence-based relationship, with appropriate consultation in the process withdrawal of equivalence decisions. Clearly many questions remain.
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