European Parliament Publishes Resolution on EU Financial Services Regulation for Third Countries

The European Parliament has published a resolution on relationships between the EU and third countries concerning financial services regulation and supervision. The resolution follows the publication of a report in August 2018 by the European Parliament’s Committee on Economic and Monetary Affairs setting out its proposal for the European Parliament’s resolution, which comes in the wake of the U.K.’s upcoming exit from the EU. The key factors prompting the resolution include the need to mitigate risks to financial stability arising from a possible no-deal Brexit, the need for clarification of the relationship between third-country markets and the EU’s single market in the interests of broader financial stability and the fact that existing third-country equivalence rules are not currently subject to a single framework.

Under the October 2019 Political Declaration, both the U.K. and the EU committed to making “best endeavours” to finalize their respective equivalence assessments by June 2020 in anticipation of the U.K.’s exit from the EU. The European Parliament’s resolution does not, however, call for an expansion of the scope of the EU equivalence framework for the U.K. or other non-EU countries seeking access to EU markets. This approach is contrary to that proposed in the U.K. Government White Paper of July 2018 by ex-U.K. Prime Minister Theresa May’s government, which set out an intention for new arrangements based on an enhanced equivalence regime. That regime would be based upon Shearman & Sterling partner Barney Reynolds’ publications which originated and developed the concept of Enhanced Equivalence and provided treaty and legislative text proposals.

The key recommendations made by the European Parliament include:
 

• Promotion of global financial regulatory reforms that aim to reduce systemic risk and enhance financial stability;
• Amendments to EU equivalence procedures, including: (i) making equivalence decisions dependent on acceptable third-country rules on combatting tax evasion, fraud and avoidance, as well as money-laundering; (ii) introducing increased transparency in the process for granting equivalence, in accordance with a structured framework and guidelines; (iii) granting the European Parliament the opportunity to scrutinize the process for granting financial services equivalence decisions and imposing an obligation upon the European Commission to consult the European Parliament prior to withdrawing equivalence decisions; (iv) establishing a framework for ongoing supervision of equivalent third-country regimes and appointing the European Supervisory Authorities to monitor equivalence decisions and advise the Commission on third-country regulatory developments; and (v) requiring the Commission to report its equivalence decisions to the European Parliament annually and explain the rationale for its decisions; and
• Strengthening the EU’s role in global standard-setting for global financial regulation, including through the active involvement of the EU and Member States in global standard-setting bodies and for the Joint EU-U.S. Financial Regulatory Forum to include more regular meetings to achieve more frequent and consistent coordination.

The resolution will be forwarded to the Council of the European Union and the Commission for their consideration.

View the European Parliament's Resolution.
 
View "A Template for Enhanced Equivalence" by Barney Reynolds.
 
View "Free Trade in U.K.-EU Financial Services - How Best to Structure a Brexit Free Trade Deal" by Barney Reynolds.

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