It is not often that the publication of a legal analysis draws the attention of an international crowd of journalists and policymakers. However, last Monday's launch of our report on "The EU's Third Country Regime and Alternatives to Passporting" in our packed auditorium saw Rachel Kent, Mark Hoban, Peter Lilley, Ashley Fox and Baroness Bowles of Berkhamstead fielding questions from the Wall Street Journal, Le Monde, Le Figaro and others from among the over 140 guests. This report of the International Regulatory Strategy Group, in cooperation with TheCityUK and City of London Corporation, was commissioned by Hogan Lovells and received significant support from senior leaders across the financial services industry.
After the Prime Minister's speech on 17 January, it is now clear that "passporting", as we currently know it, is off the table post-Brexit. So, now, attention is focused on what the alternatives could be. Happily, we already had a report on that very topic which had been "baking in the oven" since September last year, when we started the process of engaging with a broad range of stakeholders from asset and fund management, banking, insurance, wealth management, stock exchanges and clearing and credit ratings agencies in order to gather insights into the relative importance of passporting to their various businesses as well as into the merits of potential alternatives. The process has also involved regular briefings with various government departments.
The irony of Brexit is that it requires a much deeper understanding of the local regulatory regimes of the EU27 and has resulted in us drawing on the expertise of Hogan Lovells' network of offices across the EU as well as in us engaging with EU stakeholders in framing the conclusions to our report.
The debate around the alternatives to passporting has been somewhat confused in the press and even, occasionally, in Parliament partly because, up until now, there has been little in-depth legal analysis of the UK's position in relation to providing cross-border financial services when it becomes, in EU parlance, a "third country". Comment has often used the term "equivalence" to refer to the regime that might allow the UK to have access to the EU market after Brexit, but this term potentially serves to confuse by suggesting that access can be achieved by just keeping the rules the same. The report is intended to support policy makers in developing their strategies by shining a light on the access rights which might be available under current EU law – in particular under what are known as "third country regimes" – and also the different structures which can be adopted according to the route to be chosen.
The report highlights that:
- there are material gaps in coverage between "passporting" and the current third country regimes, both in terms of the activities they encompass and the complex and lengthy processes involved in securing them. This will require mitigation measures;
- solutions can range from "universal" - i.e. improving access for all third countries - to "bespoke"- i.e. a specific arrangement designed to reflect the uniquely integrated and interdependent financial ecosystems of the UK and the EU;
- mechanisms to create a new access framework include a legislative response by the EU or a bilateral or even multilateral agreement; and
- there is a need for transitional implementation arrangements, to be put into place as soon as possible, in order to reduce unnecessary business disruption and distraction – and in particular to prevent business leaving the UK prematurely in attempts to avoid the risk of not having time to make changes before Brexit takes effect.
The report's recommendation - seeking a bespoke agreement which delivers mutual market access and regulatory collaboration, securing levels of access in line with the current arrangements - is an approach which brings the objectives of many of the UK's financial services industry and the UK government into alignment. Demonstrating commonality of interest with the EU27 will be key to securing the best future relationship between the UK and the EU as well as to delivering this bespoke agreement. The level of interest and engagement in the room on Monday showed the enthusiasm from across nations for finding a good route forward. On y va!
Read the full report here.