The detailed draft withdrawal agreement (585-page / 1.37MB PDF) produced by UK and EU negotiators makes no mention of financial services, as it envisages that the UK would be bound by EU regulations up until the end of a post-Brexit transition period on 31 December 2020. The comments instead appear in the 'economic partnership' section of an outline 'political declaration' on a potential future trading relationship after that transition period has ended, also agreed by negotiators.
The political declaration (7-page / 108KB PDF) envisages "close and structured cooperation on regulatory and supervisory matters" in the context of financial services; "preserving financial stability, market integrity, investor protection and fair competition" while at the same time "respecting the parties' regulatory and decision-making autonomy, and their ability to take equivalence decisions in their own interest".
Notably, the document states that the EU and UK will begin to assess regulatory equivalence "as soon as possible after the United Kingdom's withdrawal from the Union". Both parties will aim to conclude these assessments before the end of June 2020, six months before the end of the transition period set out in the withdrawal agreement.
"Anyone looking for answers to the future of financial services in the draft withdrawal agreement will be disappointed," said insurance and wealth management expert Tobin Ashby of Pinsent Masons, the law firm behind Out-Law.com. "However, assuming the proposals can survive politically through the coming weeks – or even days – there are commitments beyond financial stability in the political declaration on the framework for the future relationship that echo some of the UK's requests for regulatory and supervisory co-operation and autonomy of decision-making for both sides."
"Autonomy for both is a double-edged sword, of course, and there is as yet no reference to the structured kind of 'enhanced' equivalence the UK has requested in negotiations to try to increase the certainty that the equivalence rulings might provide for financial services businesses operating between the UK and EU member states post-Brexit. Even with an implementation period, it still seems likely to be a considerable period of time until financial services can plan in reliance on an agreed way forwards, and so businesses will need to continue to consider a range of scenarios as they look to 2019 and beyond," he said.
The EU concept of regulatory 'equivalence' is governed by individual directives, and allows certain financial services firms from non-EU countries to provide services to clients in the EU provided that they meet a minimum level of regulatory standards. However, there are no equivalence rules for some other activities, particularly in relation to insurance. It is not clear whether the reference to "equivalence" in the political declaration refers to the existing regulatory concept or something new.