Brexit has greatly focused attention on the ability of third country firms to access the EU’s financial markets. Financial service providers may be interested in a recent EU Commission staff working document which assesses EU equivalence decisions in financial services policy. Among other things, the document provides an overview of EU financial services legislation that contains equivalence provisions and explains how EU equivalence works.
Points to note include the following:
- An equivalence decision is a unilateral and discretionary act of the EU, both as regards its adoption and any possible amendment or repeal. Equivalence empowerments do not confer a right on third countries to be assessed or receive a positive determination. However, a third country may express an interest in being assessed, which the Commission will consider. As a unilateral, discretionary EU act, an equivalence decision may change or even be withdrawn by the EU, as necessary, at any moment
- While equivalence may enhance the possibilities of doing business in the EU, its main purpose is to serve prudential regulatory purposes and it is a tool to reduce, or eliminate, overlaps in compliance in the interest of EU markets
- Since the financial crisis, the EU has adopted more than 40 new financial services measures to restore financial stability and market confidence. Some 16 of these measures contain provisions empowering the Commission to decide on the equivalence of foreign rules and supervision for EU regulatory purposes. The Commission has reached equivalence decisions under approximately half of those pieces of legislation. Overall it has adopted 212 equivalence decisions and a total of 32 jurisdictions have been positively assessed for at least one area
- Equivalence provisions are tailored to the needs of each specific legislative measure and operate in that context; considerable differences can therefore arise in how equivalence mechanisms operate, including as regards the assessment process, the criteria for assessing equivalence, the effects of an equivalence decision, and the possibility of withdrawal
While the working document does not address Brexit specifically, it does point out that different third countries involve very different exposures for EU financial markets, which will impact on an equivalence assessment. Specifically, in the case of ‘high-impact’ third countries for which an equivalence decision may be used intensively by market operators, any shortcomings in the equivalence assessment could have a significant and adverse impact on the EU. Consequently, for such countries, the assessment process will need to address these risks and the Commission will take them into consideration when making an equivalence decision.