11 February 2021

Post-Brexit MoU: ‘nil points’

“The longer we go on without substantial equivalence decisions in place, the more industry moves on... and they become less material.”
UK Treasury Financial Services, 10/02

"There cannot be equivalence and wide divergence.”
Director General, EU Commission FISMA, 11/02

There is now less than 6 weeks to secure a Memorandum of Understanding (MoU) for a financial services co-operation framework (following the “soft” end-March deadline set by UK-EU in their Trade Agreement).

Last week, the EU financial services director general issued a warning that the UK faces a “long road ahead” as the EU awaits confirmation of their future regulatory plans. This follows a 30% drop in the trading of euro-swaps traded in London (after last month’s daily loss of €6 billion in euro-denominated trading (i.e. to Amsterdam and Paris).

The Financial Times also reported *tough talk” from the Bank of England governor in his annual speech on Wednesday, while the UK Treasury Financial Services Director General downplayed the chances of quickly re-opening direct market access for UK financial services firms (i.e. if deemed by the European Commission (EC) to be “equivalent” to their EEA counterparts).

Moreover, any interim prospect of MoU progression seems to have diminished, given continuing reportage of post-TCA border trading disruption, alongside the disputed supply of covid-19 vaccines.

In the medium-term, it is most likely the European Commission await the results from the UK Government’s numerous consultations (e.g. their Future Regulatory Framework and revised Taxation rules applicable to authorised funds, asset holding companies) before making any “equivalent” pronouncement.

Longer-term (i.e. on the other side of the channel), the European Commission’s widespread review of primary legislation (AIFMD / UCITS, PRIIPS and MiFID II) in the years ahead will indicate their readiness to conform with Mr Bailey’s stated demand for the EU to adopt “global standards” and “openness”.

Meanwhile, a possible obstacle to the UK regime being adjudged “equivalent” to the EU framework remains Sustainable Finance, with Disclosure and Taxonomy regulations both excluded from previous legal onshoring.

One interesting short-term indicator is the number of UK firms voluntarily complying with EU-SFDR (level 1) obligations on 10 March; this will demonstrate the local market appetite level of those willing to undertake additional, arduous corporate due-process (i.e. corresponding to their EEA counterparts) for the duration.

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