knowledge 29 May 2023 |

Brexit and Financial Services: A welcome move towards closer cooperation (Updated 27 June 2023)

Background

The MoU follows the previous Joint Declaration on Financial Services Regulatory Cooperation, which accompanies the Trade and Cooperation Agreement.  Whereas that Joint Declaration committed the EU and the UK to agree a memorandum of understanding by March 2021, and the text of the MoU appeared to have been agreed in principle within that timeframe (see here), formal conclusion of the MoU was delayed. 

A framework for regulatory cooperation

The aim of the MoU is to outline a post-Brexit framework for structured, voluntary regulatory cooperation between the EU and the UK in financial services.  The result is a “16-point vision” for this future collaboration.  The MoU explains that both sides have “a shared objective of preserving financial stability, market integrity, and the protection of investors and consumers” and that the agreed arrangements will provide for:

• bilateral exchanges of views and analysis relating to regulatory developments and other issues of common interest;
• transparency and appropriate dialogue in the process of adoption, suspension and withdrawal of equivalence decisions;
• bilateral exchanges of views and analysis relating to market developments and financial stability issues; and
• enhanced cooperation and coordination including in international bodies as appropriate.
   

Key aspects of the MoU

The MoU establishes a Joint UK-EU Financial Regulatory Forum (the “Forum”) for structured dialogue on financial services regulatory issues.  The Forum is intended, amongst other goals, to undertake forward planning of regulatory cooperation to improve transparency, reduce uncertainty, identify potential cross-border implementation issues and consider working towards compatibility of each side’s standards.  Meetings of the Forum will be held alternatively in the EU and the UK, at least semi-annually, and whenever considered necessary.

The MoU makes clear that the regulatory cooperation, and discussions in the Forum, should not restrict the ability of either jurisdiction to implement regulatory, supervisory or other legal measures that it considers appropriate.  

The MoU also clarifies that it does not create rights or obligations under international or domestic law, nor will there be financial obligations resulting from its implementation.  Additionally, either side may at any time signal in writing to the other its wish to revise or end the MoU.

The MoU sets out activities that may be undertaken at the Forum, including:

• promoting timely domestic implementation of international regulatory standards in the financial services sector;
• sharing information on regulatory developments to allow for identification of potential cross-border implementation issues;
• exchanges of views on the respective policies, rules and processes concerning deference regimes, such as equivalence, or other tools used to address cross-border issues; 
• dialogue on autonomous decisions to adopt, suspend or withdraw equivalence relevant to one or the other side;
• discussions on macro-prudential developments and financial stability risks; 
• exchanges of views on regulatory issues, in a bilateral context, paying due respect to the regulatory interests of supervisory and resolution authorities and incorporating the views of EU and UK supervisory and resolution authorities; and 
• keeping each other informed about efforts to prevent and combat money laundering and terrorist financing as they relate to the financial services sector.

Comment

With this step towards greater collaboration, Commissioner McGuinness remarked that the EU-UK “relationship and future engagement in financial services will be built on a shared commitment to preserve financial stability, market integrity, and the protection of consumers and investors.”

In its press release, the Commission emphasised that the MoU will not address the access of UK-based firms to the EU’s Single Market or EU firms’ access to the UK market. The Commission stated that the MoU is not intended to “prejudge” the adoption of equivalence decisions.  The MoU may, however, facilitate resumption of equivalence assessments by the EU, which appear to have been suspended pending formal conclusion of the MoU, with reports of Commissioner McGuinness linking such resumption to such formal conclusion on a number of occasions (see, for example, here).

Update 27 June 2023:

On 27 June 2023, the MoU was signed by Commissioner McGuinness on behalf of the EU and the Chancellor of the Exchequer on behalf of the UK (here). Commissioner McGuinness confirmed that the EU expects the first meeting of the Forum to take place this Autumn.

Also contributed by Jonathan Murchan