Brexit update for financial services firms - week ending 31 August 2018

The week in outline:

This was a short and quiet week following the bank holiday. DExEU minister Dominic Raab gave evidence (to the HoL EU Committee) on the EU/UK negotiations and touched briefly on the financial services (FS) sector (see Document 1 below). He mentioned the bilateral arrangements that the UK was seeking for FS – a topic that we considered in last week's update. He mentions bilateral mechanics to discuss proposed rules changes and avoid/resolve dispute (presumably about the potential withdrawal of DRC[1] /access/mutual recognition under equivalence provisions as a result of rulebook divergence). He talks about limiting the impact of disputes and mentions arbitration. He does not, however, explain whether these arrangements with the EU would be unique to the UK, whether the UK is looking to go beyond “voluntary cooperation” or how arbitration would be consistent with the EU stance (a stance that the UK has now publicly accepted) that such decisions on equivalence would be taken on an "autonomous basis".

1. House of Lords EU Committee: Scrutiny of BRexit negotiations

A transcript of the hearing attended by Dominic Raab on 29 August 2018 follows. Topics under discussion include financial services (he states: "we have rather interdependent financial services with the rest of the continental economy. That is why I think we will come ultimately to a sensible arrangement"). The full transcript can be accessed here.

“Of course, on financial services, we are looking to build on the EU equivalence regime currently in place, which is quite a patchwork in its current form. We are looking for something more ambitious than that.”

In relation to the mechanisms to ensure stability in the financial services access to be negotiated with the EU, Mr. Raab stated:

“Again, without giving away too much more of the detail beyond the White Paper, what we clearly need are mechanisms and arrangements between the two sides to be able to discuss proposed changes before they hit the statute book on either side—I suspect that prevention is better than cure in the vast majority of cases. When changes are made that create particular, specific problems, we need a mechanism in the governance arrangements to handle them sensitively, to resolve the particular dispute but to try to depoliticise it so that it does not upend the broad relationship. We do not want a situation where it has a more tectonic impact on the relationship, given how broad and far reaching it will be. The challenge that we are both engaged in is to come up with enough detailed and sensitive institutional arrangements to make sure that we can resolve disputes and preserve the relationship. From my experience of international law, that is the acid test. Arbitration is obviously the ultimate model for achieving that, but we probably want a process of dialogue well before then. I sense that is what you are reaching for.”

2. European Parliament: Relationships between the EU and third countries concerning financial services regulation and supervision

This ECON report (dated July 2018) has now been published, which sets out a text of a European Parliament motion with regard to equivalence and third country relationships. The full report can be accessed here.

“Considers that assessments for equivalence are technical in nature, but notes that equivalence decisions have a clear political dimension, possibly balancing different policy objectives; insists that the process for granting equivalence to a third country in the area of financial services should be subject to appropriate scrutiny by Parliament and the Council and that, for purposes of greater transparency, such decisions should be taken by means of delegated acts, and where necessary facilitated by an early non objection procedure;”

3. ESMA: Minutes of Board Supervisors and the Securities and MArkets Stakeholders Group meetings

ESMA has now published the minutes of meetings held on 24 and 25 May 2018. Topics discussed include: Brexit risk management around 29 March 2019; MiFID II implementation; PRIIPs implementation and fintech. Part 1 can be accessed here and part 2 here.

“SMSG members also commented on, inter alia, trading obligations, data needs and the need for EU27/UK cooperation MOUs. The Executive Director confirmed that ESMA is indeed conducting internal preparations for possible MOU(s) with the UK authorities, just as there are MOUs in place with other third country authorities around the world.”

Other publications from the RegZone Brexit news feed

Department for Exiting the EU: Article 50 talks

Talks will be held on 27 August 2018. The agenda can be accessed here.

HoC: The Brexit White Paper on future relations and alternative proposals

This HoL library briefing provides an overview of the White Paper and the subsequently produced slide presentation. The full briefing paper can be accessed here.

CMS RegZone publishes weekly updates (available via email, on-line and via Twitter) on Brexit developments for financial services firms. These provide analysis and commentary on significant developments during the week in question. A daily digest of Brexit news (without analysis or commentary) is also available by email here and online via the RZ news wizard here (both of these can be filtered using the Brexit topic). Links to publications are contained in each update; publications released before the updates commenced in April 2018 can be found in a bibliography here. CMS RegZone publication ‘Where we stand’ provides an overview of the current position in a single report; this is updated regularly to take account of the key developments from the weekly updates.

[1]Dual recognition coordination (DRC) is explained in Chapter 1 of our April 2017 Report. DRC is a broad term to cover a variety of techniques such as “mutual recognition”, “home state recognition/supervision”, “deference”, “substituted compliance” and “passporting”. It can be established on a bilateral or reciprocal basis (under differing international law frameworks – from treaty rights, as in the single market, to non-legally binding MOUs) or on a unilateral basis.