26
THE UK-EU RELATIONSHIP IN FINANCIAL SERVICES
Pilgrim highlighted the costs of non-equivalence for
both UK firms seeking
EU market access and for firms in the EU.
88. However, the overall balance of the evidence was that while further
equivalence decisions might be beneficial, they were not necessarily of vital
or fundamental importance. Peter Bevan of Linklaters suggested that the
importance placed by the sector on equivalence had diminished over time:
“It is a topic we talked a lot about a year or two ago, but perhaps it is not
something we hear being called for so much these days”.
121
Similarly, Sir
Jon Cunliffe argued that equivalence was just
one factor among many that
firms take into account, and that it “perhaps gets too much attention as a key
determinant of where business will move in the future”.
122
89. Peter Bevan also highlighted the fact that, for the sector, “it was always
understood that you needed to prepare on the assumption that that
equivalence would not be forthcoming … Firms are well prepared for the
reality that they find themselves in.” He added that, since
firms have now
adjusted to this new reality, the value of future equivalence decisions had
diminished.
123
This was corroborated by the London Market Group: “Given
the ongoing uncertainty over equivalence, and that it was never a perfect
solution anyway … much of the London Market is moving on from that
debate and looking towards the potential that domestic reform could bring.”
124
90. Another limitation to the value of EU equivalence decisions is the uncertainty
around the withdrawal of equivalence once granted. Dr Georgosouli and
Prof Lastra said that the EU’s approach to withdrawing equivalence “entails
significant risks for third-country financial firms because the legal basis for
their activities might be pulled out at short notice and with little or even no
warning.”
125
Peter
Bevan agreed that, without assurances that equivalence
would not be withdrawn once granted, firms would be “building a business
model and making an investment on the basis of shifting sand”.
126
91. As highlighted in paragraphs 80–81, there is evidence to suggest that the EU
is holding the UK to a higher standard than it has done for other countries
by including future regulation in its consideration of equivalence. In this
context, some witnesses questioned whether further equivalence decisions
were worth the terms on which they might be granted to the UK. Dr Gerard
Lyons, of Policy Exchange and Netwealth Investments, said: “Some might
say that [equivalence]
is a nice to have, but regulatory independence is a must
have”.
127
New Financial argued that, because further equivalence decisions
were unlikely, “it would be misguided to base the future regulatory strategy
for the UK on any sense of maintaining access.”
128
92. It was also highlighted to us that equivalence is not relevant at all for all
sub-sectors of financial services. Michael Dobson said that Schroders,
and asset managers more broadly, “generally do
not rely on equivalence to
conduct our core business” but added that “it is a much bigger issue for
121
Q 45
122
Q 30
123
Q 45
124 Written evidence from London Market Group (
RFS0009
)
125 Written evidence from Dr Andromachi Georgosouli and Prof Rosa Maria Lastra (
RFS0010
)
126
Q 45
127
Q 7
, see also
Q 9
(Dr Gerard Lyons)
Q 7
(Rachel Kent).
128 Written evidence from New Financial (
RFS0006
)
27
THE UK-EU RELATIONSHIP IN FINANCIAL SERVICES
investment banking, commercial banking and other areas.”
129
The London
& International Insurance Brokers Association (LIIBA) said that the picture
was similar in their sector: “the EU legislation governing our sector has no
equivalence provisions. There is no mechanism therefore for [the] EU to
grant further market access rights to UK insurance brokers”.
130
93. In terms of areas where equivalence decisions might be important,
representatives of the Bank of England and the regulators highlighted
two specific decisions: Article 25 of the European
Market Infrastructure
Regulation (EMIR 25), which covers the recognition of CCPs, and Article
47 of the Markets in Financial Instruments Regulation (MiFIR 47), which
covers cross-border investment banking services. However, equivalence
under EMIR 25 is the one decision the UK currently holds, while equivalence
under MiFIR 47 was described as a particularly unlikely outcome: “the EU
has not found the UK equivalent, the UK has not found the EU equivalent,
and, as
far as I can work out, the EU has not found any other country
equivalent and is reviewing that clause.”
131
Separately to these two decisions,
equivalence of trading venues and reinsurance equivalence under Solvency
II were also highlighted by other witnesses.
132
94. The Economic Secretary expressed no significant concern about the absence
of equivalence: “Time moves on. Increasingly, for both the EU and the UK,
the further we get away from the TCA, the initial
agreement and the initial
decisions or lack of decisions on equivalence, the more we will naturally both
develop our own regulatory regimes”.
133
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