The future direction of the UK's financial services industry will be shaped by the extent to which firms can continue to access the EEA based on a UK authorisation (and vice versa).

Understanding the gaps between the access offered by "equivalence" and the status quo of "passporting" will assist the UK and EU in working together to design the optimum future access arrangements for financial services for the benefit of businesses and consumers across the EEA as well as in the UK and also to achieve a stable transition.

Currently UK-authorised firms use "passporting" rights to access the EEA but those rights automatically lapse on Brexit when EU laws cease to cover the UK. If no replacement arrangements are agreed, UK firms' ongoing access to EEA states would be based on the access permitted to non-EEA firms (Third Country Firms) under EU law provisions known as the "Third Country Regime" (TCR). This relies on the UK maintaining a legal, regulatory and supervisory framework for financial services which is "equivalent" to the EU's, so this access regime is sometimes referred to as "equivalence". It also typically depends on EU institutions recognising the firm seeking access, following an assessment of the firm as well as the "equivalence" of the firm's domestic regime. In this note, Hogan Lovells International LLP explores the key differences between passporting and equivalence regimes.


an EEA right which allows firms authorised in an EEA state to conduct regulated activities in any other EEA state.


a regime based on EU law under which the EU may, subject to completion of a complex process, allow firms authorised in a nonEEA country to provide certain regulated activities into the EEA or into a specific EEA country (without being separately authorised in the EEA). The regime typically operates as a recognition by the EU regulator that the firm seeking access is regulated under a regime that is equivalent to that in the EU.

There are significant gaps between "passporting" and "equivalence" in terms of a Third Country Firm's ability to continue to conduct regulated activities across the EEA without local authorisation on Brexit, which include the following:

a) Range of activities permitted: Equivalence does not cover the full range of activities permitted by passporting. Key gap areas include: deposit-taking, retail investment services, insurance and insurance mediation (these gaps would be greater if there are unexpected delays to pending EU legislation, such as MiFID II, with the result that the related elements of the Third Country Regime are not put in place before Brexit). The equivalence regimes under different EU laws also operate differently, with different requirements for enabling firms to access the EU for the activities covered under those laws.

b) Ability to obtain timely "equivalence" access: Access to the EEA through equivalence relies on the EU permitting access for each of the activities to be provided (in accordance with the different equivalence regimes in the EU laws governing different activities). This requires the legal, regulatory and supervisory framework of the third country for the relevant activity to be assessed by the EU and may require other complex criteria to be met, for example, co-operation agreements between regulators and/or for the eligibility of specific firms to be assessed. Gaps could be created due to the EU and UK regulators and/or applicant firms having failed to successfully complete the required processes pre-Brexit even where the activity is eligible to be covered. This may arise for practical, regulatory or political reasons. These reasons could include a lack of resources in the EU institutions, concern over whether "equivalence" criteria have been met (for example, there might be concerns over the effectiveness of a regulatory framework newly imported to the UK from the EU), or delays in putting a required co-operation agreement in place. Furthermore, there is a technical argument that the UK would not be entitled to apply to be assessed for equivalence prior to Brexit as it would not be a third country. In addition to the criteria mentioned above, which relate to the assessment of the third country as being "equivalent", it is typically also necessary for individual firms from the third country seeking access under the equivalence regime to apply to EU regulators for recognition or registration in accordance with the EU law that establishes the equivalence regime. This application process also takes time.

c) Ability to retain equivalence access: An equivalence decision can be withdrawn by the EU in respect of the third country's equivalence with the EU regime. The process for withdrawal of an equivalence decision is, as yet, untested but may involve relatively short notice being given. Firms will need adequate notice of any such withdrawal to make alternative access arrangements, in the same way that UK firms with EEA passports are expected to be on two years' notice (after Article 50 is triggered) that the passporting regime will be withdrawn.

To assess the extent to which an "equivalence" regime offers an alternative to "passporting", the potential impact of the gap areas needs to be carefully assessed and mitigated.

Key characteristics of "passporting" and "equivalence" are set out at a high level in this table to assist with understanding the relative merits of each.

Assessing the impact of the gaps in activities covered also involves quantifying the extent to which "passporting" is relied on for those activities, by value and number of firms using passporting rights as well as which EEA states they passport into.

Many firms authorised in an EEA country currently rely on "passporting" rights in order to conduct regulated activities in the UK. These rights will also lapse on Brexit. The UK will need to put its own "equivalence" or replacement access regime in place pre-Brexit if firms from EEA countries are to continue to be able to conduct regulated activities in the UK on the basis of their EEA authorisation.

Key Characteristics Compared: Passporting v. Equivalence

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