Overview: key features of the UK position

In our White Paper, we describe these features as ultimately achieving:

Principle of autonomy; Each Party to determine its own rulebook and assess whether access to its market is maintained.

Expanded scope of activities permitted cross-border

• Currently not sufficient for the breadth of interconnectedness between our markets

• Prioritising the most mutually beneficial activities for the economy, ensuring no unintended consequences or arbitrage

Common principles

• Agree common principles for the governance of our relationship

• Include commitments to global norms, and that equivalence is an evidence-based judgement on the
equivalence of outcomes

Equivalent at the outset

• UK and EU start with the same  rulebook and entwined supervision

• Initial reciprocal recognition agreed for all third country regimes

Regulatory & supervisory cooperation

Formalised regulatory and supervisory cooperation. Encourages:

  • Regulatory coherence
  • Effective market surveillance
  • Effective cooperation (including in crisis)

Structured withdrawal

  • Consultation and discussion before  loss of access to either market
  •  Ability to try and find solutions
  • Clear timelines and notice-periods
  • Time for businesses and supervisors  to adapt to change on either side
  • Address acquired rights, safeguarding existing obligations to customers if equivalence is withdrawn

In our White Paper, we describe these features as ultimately achieving:

  • Predictable, transparent and robust  processes
  • Common principles for the  governance of the relationship
  • Extensive supervisory cooperation and regulatory dialogue


The UK has proposed in its White Paper a two-fold relationship for financial services:


Parties retain autonomous judgement about access to their market and over legislation.


Bilateral agreement would include  commitments and processes – ensuring transparency, stability and promoting cooperation.

The UK proposal would not undermine the autonomy of each Party, whilst  encouraging regulatory compatibility with bilateral Treaty-based commitments to provide certainty and stability, not
provided for under existing EU equivalence regimes

Each side’s legislative process and rulemaking would be  autonomous, where each of us are answerable to our respective political and judicial frameworks

The criteria for determining if a foreign jurisdiction has  equivalent standards and supervision for a given sector would be autonomous

The decision to grant or withdraw equivalence would be an  autonomous judgement

There would be no recourse to the EU/UK Dispute Resolution Mechanism for autonomous matters – only for  commitments included in the bilateral, Treaty-based agreement


Why this is important?

  • There are gaps in coverage of the existing third country regimes. For  example, there is no third country equivalence regime to support the rights of around 7,000 EEA domiciled funds to market to UK retail
    customers, who operate under the passport today.
  • Managing the scale of financial services activity occurring in both  directions as part of a productive and efficient European market will inevitably demand bilateral engagement. A structure is needed to provide greater clarity about how we will work together.
  • Supervisory cooperation should reflect the level of integration between the UK and EU and provide
    a clear legal framework which covers micro- and macro- prudential supervision and crisis  management. Reliance on informal MoUs would inevitably leave gaps in the oversight of micro and
    macroprudential risk, while uncoordinated decision-making could lead to conflicting or
    unenforceable decisions.
  • Cross-sectoral structured consultation and dialogue on the evolution of rules is essential if we are
    to maintain compatible regulation across the very broad spectrum of activity taking place. This is
    not provided for under existing equivalence frameworks.
  • It is therefore critical that we have a bilateral aspect to our relationship. The EU has already
    pursued such an approach, first in the offer to the US on TTIP, and now as agreed with Japan.

There are deficiencies in institutional process, which a bilateral agreement would overcome …and further deficiencies in scope under the EU’s existing third country regime

EXISTING THIRD COUNTRY REGIME WON’T WORK   Lack of comprehensive, cooperative institutional process

Without a bilateral agreement:

  • Worse outcomes for financial stability across borders  e.g. the risk of supervisors inadvertently  undermining  each other if a cross-border bank was facingr esolution.
  • There is no clarity for either Party about what happens in dispute. Immediate recourse to winding down activity is rarely desirable and may risk financial stability.

With a bilateral agreement:

  • Create an institutional framework to help encourage regulatory consistency, manage stability or arbitrage risks, and enable supervisory cooperation across financial services.
  • Structured process for amending or withdrawing  equivalence that recognises that 30 days’ notice (or less) could not work for e.g. a large clearing house or major bank branch.

The impossibility of acting unilaterally in relation to major firms and jurisdictions is already well-evidenced – as  demonstrated by the EU and US taking decisions together in practice about access to each other’s markets for clearing services, delivered through coordinated announcements

Clarifying and formalising the process of managing cross-border regulation and market access will
not limit either Party’s judgement or flexibility, but rather will create greater confidence in and
predictability of the process for affected firms and supervisors.


Some services that provide clear economic benefits are not covered, leaving a patchwork of EU national regimes instead, which risks regulatory arbitrage and fragmentation of markets.For example, wholesale lending and deposit taking in CRD; some areas of investment firm activity in MiFID; wholesale insurance within Solvency II.

The scope of what cross-border activity is permitted into the  EU has evolved dossier-by-dossier following the crisis, rather than in a conscious way. The nature and objective of EU third country  rules vary considerably (e.g. MiFID2, EMIR, Solvency 2, CRR).

Live file discussions are amplifying uncertainty for firms through a politically-charged debate in the EU on revisions to equivalence regimes which have only recently come into force. For example, most evident in the Investment Firm Review. Unpredictability makes it an impossible basis for the UK to rely on and negotiate Brexit, as the goalposts are constantly shifting.

We are not proposing an expansion of the third country equivalence regime to all the areas covered by the passport. Instead, we propose that the scope of the relationship should be  defined appropriately in relation to mutually economically beneficial global market activity.


There are many international and EU precedents to build on

Common principles for the governance of the relationship
• G20 agreed that deference of regulatory and enforcement regimes should be possible for high quality
regimes based on similar outcomes
• EU TTIP proposal offered outcome based regulatory and supervisory tests which may lead to ‘mutual
reliance on the rules of the other Party’
• EU-CH GI agreement permitted mutual market access on the basis of an objective set of agreed
regulatory standards
• Basel accords and international standards bodies such as FSB, IAIA, FAFT, IOSCO provide a framework for similar outcomes-based rules

Extensive supervisory cooperation and regulatory dialogue
• EU-US covered agreement on insurance provides for worldwide group prudential oversight in the home
jurisdiction only
• FSB’s global college framework is the standard third country baseline and the FSB has also set out the
requirements for resolution scenarios
• Information sharing within EU FTAs (CETA, EU-Ukraine, EU-Japan, EU-Singapore, EU-Vietnam, EU Korea)
• MoUs like the BoE/ECB bespoke arrangement for UK CCPs

Predictable, transparent and robust processes
• EU TTIP proposal included governance arrangements for regulatory co-operation, equivalence
assessments, data sharing and dispute resolution
• EU-Japan establishes a financial regulatory dialogue between the Parties, commitments to consultation
prior to either Party rescinding regulatory reliance on the other’s rules, and technical mediation, to be
available where disputes arise (further detail overleaf)
• CETA includes an FS commitment for annual dialogue to supervise implementation, develop international
standards and resolve disputes
• WTO/GATS supports the inclusion of specialist FS experts for disputes

Precedent: focusing in on EU-Japan

A similar two-fold approach has recently been agreed in the EU’s deal with Japan.While the criteria and decision-making for equivalence is outside the agreement,

  • the two Parties have agreed:
  • That wherever possible the Parties shall be able to rely on each other’s rules and supervision;
  • A financial regulatory dialogue is established between the Parties;
  • Commitments that in assessing regulation of the other Party, the Parties will not require identical rules but will take an outcomes-based approach, give consideration to impacts on the other, and take into account different business models;
  • Commitments to consultation prior to either Party rescinding decisions regarding regulatory reliance on the others’ rules and reverting to the application and enforcement of its own rules;
  • Technical mediation, to be available where disputes arise;
  • Development of a framework of guidelines and procedures to implement the commitments, which could increase cooperation, certainty, and the closeness of the relationship.

Three Pillar Arrangement

The new, bilateral economic and regulatory arrangement would have 3 pillars


1. Common principles for the governance of the relationship

The UK-EU arrangement should include common objectives to manage shared interests such as financial stability, investor protection, market integrity, and the prevention of regulatory arbitrage

2. Extensive supervisory cooperation and regulatory dialogue

The UK proposes  that the UK and the EU would commit to an overall framework that supports extensive collaboration and dialogue

3. Predictable, transparent and robust processes

To give business the certainty necessary to plan and invest, transparent processes would be needed to
ensure the relationship is stable, reliable andenduring

Pillar 1:

Common principles for the governance of the relationship

Example Principles

Non-discriminatory, evidenced, and outcomes based approach to determining equivalence
Commitments to respect global norms for financial services; Support cross-border financial services between the EU and UK; and take into account the impact on the other Party of legislative change

Maintain economic relations of broad scope; Set out in the agreement where cross-border service provision would be permitted and assessed under respective regimes.

Acknowledging existing levels of co-operation and initial reciprocal recognition; Reflecting the unique starting point of the UK-EU relationship, while still respecting autonomy to assess equivalence as the relationship develops

Commitments to avoid erecting unnecessary barriers in the areas agreed;Agreement that additional requirements would focus on cooperative solutions unless and until equivalence is no longer maintained by either Party

Commitments to respect global norms for financial services: For example, commitment to international standards; fair and non-discriminatory supervision.

The relationship should follow commonly accepted principles for co-operative relationships in financial services, and reflect the unique UK-EU starting point and the ambition of the Parties

Pillar 2:

Extensive supervisory cooperation and regulatory dialogue


Extensive supervisory  cooperation and regulatory dialogue

Regulatory dialogue

AIM: foster regulatory coherence, avoid arbitrage, increase  mutual understanding, and identify and resolve conflicts of rules for cross-border business.

EU already has a regulatory dialogue with third country partners  including Canada, Japan and the US
A UK-EU forum would ultimately help us work closely and encourage – in the words of the EU-Japan FTA – “mutual compatibility of regulation”.

It would enable structured consultation at the political level,  providing an avenue for raising problems for the other Party’s attention; looking for solutions together; or commencing a process of technical mediation

Supervisory Cooperation

AIM: address the issue of supervisory cooperation across the sector  and ensure predictability both day-to-day and in crisis.

  •  The UK proposes creating a system for supervisory cooperation including, for example:
    commitments around consultation in relation to supervisory actions; escalation to discuss
    difficulties either Party faces cross-border; and crisis cooperation arrangements
  •  Include provisions relating to information  exchange, to avoid creating a gap in the level of supervisory financial information shared across borders between our markets – much of which is
    not provided for under the EU’s existing third country framework

Sufficient oversight for cross-border business will require cooperation between Parties to ffectively implement

Pillar 3: Predictable, transparent and robust processes


It is important that the new economic and regulatory arrangement provides sufficient stability and transparency for our market actors and supervisors to rely on. A structured and transparent withdrawal process is needed to support this.

Predictable, transparent and robust processes

Safeguard existing rights  acquired under the agreement

The judgement of either Party to amend or withdraw equivalence would be sovereign, but the Parties will agree bilateral processes to enable the effective implementation of these changes while protecting consumers and financial stability

Reciprocal commitments to prior consultation

EU-Japan states that “the  Parties shall consult with each other in an appropriate manner prior to reverting to the application and enforcement of their own rules”

Specific UK-EU conditionality

Guarantees around  cooperation, oversight and onsite inspections – which may be difficult for the EU to impose on all third countries without affecting wider EU/third country relationships and “moving the goalposts” for everyone Principle exists in the timeframes EU puts in place to implement major regulatory change.

Protect consumers and  businesses through a commitment that existing contracts can be fulfilled even if access is withdrawn, or an institutional process to address this issue together at the relevant time

Clear, reciprocal timetable for  withdrawing market access

Just 5 EU equivalence regimes include procedures relating to withdrawal and these are not aligned


The UK’s proposal does not undermine either side’s autonomy

  • We are not suggesting that this type of framework would set out the detailed criteria for equivalence for a given sector
  • Nor would it prevent either Party from making its own judgement about whether equivalence continues to be maintained
  • Nor could our proposal for a binding dispute resolution system be used as a means to challenge whether the EU’s or UK’s judgement, against its criteria, was correct

The judgement of either Party would be autonomous, both in making a determination of the equivalence
of rules to access its market and deciding whether or not this is sustained over time

Instead, our thinking is grounded in:

  • Effective cooperation
  • Transparency
  • Dialogue
  • Problem solving
  • Better Regulation

“By informing each other and cooperating early on in the process, regulatory and competent authorities can come up with solutions to similar problems, while keeping up their respective policy objectives and standards.
This reduces the cost of doing business and creates more and fairer competition across borders”
– Commission Better Regulation materials

Autonomy does not prevent either of us entering into commitments today about how we will approach our respective judgements, or agreeing clear processes around mediation, problem solving and sensible timetables for winding down activity and avoiding retaliation

Key takeaways

Three key takeaways:

Bilateral component is  critical

Should be commensurate to our relationship and degree of market integration; address key gaps in
scope; set out institutional cooperation; and use consultation and mediation to explore solutions and
agree timescales appropriate for the scale of changes before they take effect.

Autonomy of decision making

This is a proposal that fully respects each side’s autonomy of decision-making, addressing challenges and concerns around the sovereignty of decision making. The bilateral commitments envisaged do not constrain each side’s discretion, but rather ensure that change can be managed effectively.

Cross-border cooperation matters

For EEA firms doing business in the UK and for supervisors, the UK has no desire to water down existing cooperation. There is no need to default to a world with less predictability about how the two sides will share information, and cooperate day-to-day and in crisis.

Together, this represents a deal that avoids needless fragmentation and divergence of our  markets, of our shared regulatory rulebook, and of cross-border supervisory cooperation

The proposal respects EU concerns and has a number of important benefits for
both the UK and EU

Ensure financial stability is  safeguarded across Europe

• Ensures continuation of the post-crisis, deep and collaborative  regulatory partnership to ensure financial stability

Unilateral decision making on granting/revoking equivalence

• Ensures that the UK and EU retain control of access to their markets  and respects regulatory autonomy of both Parties
• Sets out clear, transparent and robust institutional processes based  on cooperation and trust

Enhanced regulatory cooperation and level playing field commitments

• Provides a robust framework of treaty-based commitments to  underpin the relationship, as well as ensuring transparency and stability and to promote cooperation

Avoid market fragmentation  which will harm European citizens and businesses

• Enables cross-border provision of the most important and mutually  beneficial international financial service offerings between the UK and EU

• Provides certainty to consumers, business and governments

No UK cherry picking of rights and responsibilities

• Sets out a balance of rights and responsibilities for the UK and does not replicate current levels of market access.

This Article comprises material published by the UK Department for Exiting the EU. UK public sector information is reproduced pursuant to the Open Government Licence The Legal Materials contain UK public sector information licensed under the Open Government Licence v3.0. 

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