Early on in the Brexit to-ing and fro-ing, the EU took the position that UK financial services players would have to conduct their European business through operations in the EU supervised by EU regulators. It was a major concession by the EU to relent and say it was willing to allow for “equivalence.” That would mean that UK firms could offer financial services in the EU without being directly supervised by EU authorities if the EU had determined that the UK rules and oversight mechanisms were sufficiently close to those of the EU to be acceptable.
It turns out that despite the EU seeming to change its position, it isn’t clear at all that the EU has actually budged. From a Financial Times article in February 2017:
The City of London’s hopes of maximising access to the EU are set to be dealt a blow by European Commission plans to take a tough stance on rules that could provide a post-Brexit lifeline for the UK financial sector…..
Instead, many are looking to take advantage of the EU’s equivalence provisions, which make it simpler for foreign institutions to do business with Europe, as long as Brussels trusts their home countries have similar standards of oversight….
But the commission’s “staff working document” emphasises Brussels’ determination to carry out “continuous follow-up monitoring” to make sure countries deemed equivalent still meet the criteria. It also stresses the commission’s power to withdraw the status at any time in light of “contrary developments”.
Brexit supporters argue that the UK could disentangle itself from the EU’s financial rules while still benefiting from market access. But the document makes clear that one of the commission’s prime concerns is to make sure that no country can get or keep equivalence if it conducts a regulatory bonfire or retreats to light-touch supervision….
The document argues that the EU should set “sufficiently robust prerequisites”, or conditions, before it grants equivalence, including the “on-site” inspections of overseas firms operating in Europe and “effective access to data”…
The EU official cautioned that equivalence remained “very much case-by-case. One sector doesn’t set a precedent for another, one country doesn’t set a precedent for another”.
Maybe I am missing something but the update in today’s pink paper does not sound all that different. Key sections:
The EU’s financial services chief has warned that Brussels will be strict in policing the Britain’s rights of access to the bloc’s market after Brexit.
Valdis Dombrovskis said he welcomed UK proposals to build market access for the City of London around EU rules, known as “equivalence”. But he said market access could never be taken for granted, with Brussels determined to toughen its assessments of whether countries meet the conditions….
He also said Brussels was pressing ahead with measures to reinforce oversight of equivalence access, with stronger requirements for countries’ financial supervisors to share information with the EU and more monitoring of whether jurisdictions continued to meet the criteria…
Many EU officials privately assume that the UK — barring a sea change in its regulatory and supervisory approach — would have little difficulty in securing equivalence rights after Brexit, given that it already applies EU rules.
But Mr Dombrovskis’ remarks are a sign of Brussels’ determination to prevent regulatory undercutting that could hand City firms an advantage over EU competitors.
I may be unduly skeptical, but the Financial Times has too often given optimistic readings about the EU cutting the UK breaks on points under discussion, only to be proven wrong. While it may not be true of the “EU officials” sounded out for this piece, the Financial Times has exhibited a tendency to be much closer to UK-friendly sources in the Eurocracy and thus has not always been able to take an accurate pulse.
The concrete part of the article is that the UK produced a white paper in July saying it wanted the benefits of equivalence after 2020. Dombrovskis is making friendly noises while also making clear that the EU needs to see exactly what the UK is proposing and it isn’t about to be a pushover. This is the part of the article that if I were with a UK financial services firm, would give me pause:
Mr Dombrovskis said Brussels was not offering any kind of “super equivalence” to the UK, and that assessments of whether Britain qualified would require individual assessments “sector by sector and legislation by legislation”.
The fact that the EU is looking at a series of narrow deals in and of itself is a big problem for the UK. The Government is going to be overwhelmed by the number of trade and other agreements it needs to secure even if it gets a transition agreement from the EU, which as we discussed earlier this week, is looking less and less likely. IF the UK crashes out in March 2019, presumably nothing would be in place yet.
To add to the cheer of the day, Lambert sent on this must-read tweetstorm. Des was one of the few to predict the 1997 emerging markets crisis:
And to repeat a saying from a colleague: “Things always look the darkest before they go completely black.”