HM Treasury has published the Equivalence Determinations for Financial Services and Miscellaneous Provisions (Amendment etc) (EU Exit) Regulations 2019, providing U.K. government ministers with a temporary power to make equivalence and exemptions directions for the EU and EEA Member States under relevant financial services legislation. The temporary power will come into force on the date that the U.K. leaves the EU (currently expected to be no later than January 31, 2020) and can only be used for up to twelve months from that date.
Equivalence decisions currently enable EU authorities to determine that third-country regulatory frameworks are equivalent to EU standards. After the U.K. leaves the EU, the power to make equivalence decisions in financial services legislation will be transferred to HM Treasury. Equivalence decisions made by the EU in respect of third countries will become retained law in the U.K., since these are currently made by way of Commission decisions that are on-shored or due to provisions being introduced under the European Union (Withdrawal) Act 2018 as part of the on-shoring process for particular legislation. However, deficiencies will need to be addressed to ensure those decisions operate effectively in the U.K. after Brexit, to allow EU counties as potentially equivalent jurisdictions to be considered and for the U.K. to take its own equivalency decisions after Brexit. The temporary powers granted to HM Treasury will also enable HM Treasury to deal with the need to make or revoke equivalence decisions for third countries and EU and EEA Member States at short notice.
Key aspects of the Regulations include (i) a list of the EU legislation under which HM Treasury may make equivalence decisions for EEA states; (ii) rectification of deficiencies to existing EU equivalence decisions that will become retained law in the U.K., to ensure that the third-country regimes captured continue to be considered as equivalent by the U.K. after Brexit; and (iii) revocation of regulations establishing the European Supervisory Authorities and European Systemic Risk Board. HM Treasury has already published an equivalence direction in respect of the Prospectus Regulation and Transparency Directive and exemption directions under the Market Abuse Regulation, Markets in Financial Instruments Regulation, European Market Infrastructure Regulation and the Securities Financing Transactions Regulation. It should also be borne in mind that most EU participants accessing UK markets or customers will be able to benefit from temporary permission regimes after Brexit, lessening the immediate need for equivalencies in many areas.