On 20 August 2018, the UK Government published a framework on the proposed future partnership between the United Kingdom and the European Union for financial services following the exit of the UK from the EU (Framework). The Framework, dated 25 July 2018, is set out in the form of a presentation, which forms part of a series produced by the UK negotiating team for discussion with the EU and builds on a White Paper published by the UK Government on 12 July 2018 on the future UK-EU relationship.
The Framework seeks to respect the autonomy of both the UK and the EU (Parties), to provide certainty for market participants and safeguard financial stability. The Framework states that the UK will ensure that after exiting the EU, strong and appropriate regulation will be maintained, however it rejects the idea of rule-taking i.e. adopting external rules invariably, without influencing their formation. The aim is to achieve a mutually acceptable solution while respecting both Parties’ autonomy.
Proposed model and key features
The UK position involves the following key features:
- Principle of autonomy: Parties shall remain autonomous in terms of rulemaking and granting access to their markets.
- Equivalence at the outset: Immediately following Brexit, both Parties will start with the same rulebook and entwined supervision. Additionally, it is proposed that there would be reciprocal recognition for all third country regimes at the outset.
- Expanded scope of activities permitted cross-border: Owing to the interconnectedness between the UK and EU markets, the aim would be to expand the cross-border activities that are permitted within each other’s territories, prioritising the most mutually beneficial activities for the economy and seeking to ensure that unintended consequences or arbitrage are avoid.
- Common principles: It is proposed that certain common objectives would be established to address shared interests, and that equivalence would be determined on the basis of an outcomes-based approach.
- Formalised regulatory and supervisory cooperation: The UK intends to commit to an overall framework that supports extensive collaboration and dialogue, in order to encourage regulatory coherence, effective market surveillance and effective cooperation.
- Structured withdrawal: It is suggested that any withdrawal of access to markets, including through a declaration of non-equivalence, should require prior consultation as well as clear and reciprocal timelines and notice-periods. Special provision for acquired rights is also contemplated, to safeguard existing obligations to customers if equivalence is withdrawn.
According to the Framework, the relationship of the Parties is proposed to be two-fold:
- Autonomy: Parties would remain autonomous with regards to rulemaking and granting access to their market. In particular, the legislative process, the determination of equivalence of foreign regimes (in terms of rules and supervision) and the decision to grant or withdraw equivalence, shall remain within the domain of each of the Parties. There would be no recourse to the EU/UK Dispute Resolution Mechanism for matters deemed within the Parties’ autonomous judgment.
- Bilateral: The UK Government considers a bilateral treaty, establishing clear commitments and processes, to be critical. Bilateral arrangements would not be intended to undermine Party autonomy, but rather ensure that change can be managed effectively. In particular, a treaty-based system would be intended to ensure the desired level of certainty and regulatory consistency, building confidence and predictability in the markets, and should seek to address stability or arbitrage risks and promote transparency and supervisory cooperation in financial services. At the same time the proposed treaty would seek to address deficiencies both in terms of institutional processes and scope under the existing EU equivalence regimes. The UK proposes that the arrangement would be organised on the basis of three pillars: common principles, extensive supervisory cooperation and regulatory dialogue and predictable, transparent and robust processes.
The UK Government considers that this Framework, which combines autonomous decision-making with a bilateral component and which seeks to foster robust cross-border cooperation, is capable of avoiding unnecessary fragmentation and divergence of the UK and EU markets and their regulation and supervision.