UK's Brexit proposals for financial services lean on EU-Japan trade deal

Out-Law News | 22 Aug 2018 | 9:52 am | 2 min. read

A Brexit deal on financial services could be modelled on terms already accepted by the EU in a recently-concluded trade agreement with Japan, the UK government has said.

Earlier this week the UK government published a presentation explaining its vision for a future UK-EU partnership on financial services (23-page / 1.60MB PDF) post-Brexit.

Under the proposal the financial services regime in the UK and EU would be deemed equivalent at the point of Brexit, but provide both the UK and EU with freedom to set their own rules thereafter and enable the UK and the EU to amend or withdraw their determination of equivalence.

A bilateral agreement between the UK and EU would regulate how the amendment or withdrawal of equivalence would be handled "to enable the effective implementation of these changes while protecting consumers and financial stability", according to the UK plans.

From the point of Brexit there would also be "initial reciprocal recognition agreed for all third country regimes", although both the UK government and EU would retain the autonomy to change that position.

The proposals also envisage continued regulatory coordination between UK authorities and EU supervisors in the area of financial services.

The UK government said it is "critical" that a "bilateral aspect" to the UK-EU's relationship on financial services exists post-Brexit to complement the autonomy provided for in its proposals. It pointed to "a similar two-fold approach" being agreed in the EU’s trade deal with Japan, which was finalised earlier this summer.

"While the criteria and decision-making for equivalence is outside the agreement, [the EU and Japan] have agreed: that wherever possible the parties shall be able to rely on each other’s rules and supervision; a financial regulatory dialogue is established between the parties; commitments that in assessing regulation of the other party, the parties will not require identical rules but will take an outcomes-based approach, give consideration to impacts on the other, and take into account different business models; commitments to consultation prior to either party rescinding decisions regarding regulatory reliance on the others’ rules and reverting to the application and enforcement of its own rules; technical mediation, to be available where disputes arise; development of a framework of guidelines and procedures to implement the commitments, which could increase cooperation, certainty, and the closeness of the relationship," the UK government said in its paper.

Tobin Ashby, an expert in financial services regulation and Brexit at Pinsent Masons, the law firm behind, said: "An approach of recognising initial equivalence due to the current regimes being aligned has always made sense, although the EU may fear that agreeing to this may compromise the position of the remaining membership. The UK’s framework suggestion of common principles for further equivalence and proposals for bilateral regulatory coherence may help, but it seems this will not be an easy negotiation given comments already made by the EU negotiators."

"The UK has repeated its acceptance of autonomous decisions on equivalence, albeit as the other side of the coin to UK autonomy. This means that some of the uncertainty stemming from the fear of unilateral EU decisions on equivalence could continue for cross-border financial services post-Brexit, even if the equivalence is enhanced. Firms will be keen to understand more on how the proposed bilateral arrangements in this framework might work to mitigate that uncertainty. The framework’s references to other EU trade deals is instructive, but the detail in the document itself is light," he said.