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Oct 23, 2018

Enhanced Equivalence in the Context of Brexit

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The U.K.-EU financial services Brexit discussions are focused on refinements to the existing EU law concept of equivalence and how to make it work in the context of Brexit. In its White Paper,[1] the U.K. Government has proposed that trade in services generally should operate on the principle of mutual recognition, and it proposes an (enhanced) equivalence basis for trade in financial services. The thinking behind Enhanced Equivalence was developed by partner Barnabas Reynolds in his Template for Enhanced Equivalence.[2] In his new publication, Free Trade in UK-EU Financial Services – How Best to Structure a Brexit Free Trade Deal,[3] he addresses the topic again, and explains why two omissions in the White Paper from what was contained in the Template should be fixed. First, an independent tribunal should oversee the application of the equivalence definition. Secondly, the equivalence concept should extend across all financial services areas from the outset.

In addition, Mr. Reynolds shows how Enhanced Equivalence could best be achieved through a chapter in a U.K.-EU Free Trade Agreement (FTA) which contains all the operative provisions, and he proposes wording for a draft chapter.[4] An all-encompassing FTA chapter would provide a stronger legal underpinning, ensuring maximum predictability for the industry. This approach would allow the U.K. and the EU to maintain the current levels of cooperation and to continue to develop a pan-European regulatory framework, building on their successful collaboration over the past years to mutual gain.

Footnotes

[1]  The White Paper, entitled “The Future Relationship Between the United Kingdom and the European Union,” is available here.
[2]  “A Template for Enhanced Equivalence: Creating a Lasting Relationship in Financial Services Between the EU and the UK,” Barnabas Reynolds, published by Politeia, 17 July 2017, available here. Note that this is a personal publication of the author in such capacity and is not a publication of Shearman & Sterling LLP.

[3]  In his fourth book for Politeia, “Free Trade in UK-EU Financial Services – How Best to Structure a Brexit Free Trade Deal” (available here), Partner, Barnabas Reynolds, explains further why these two changes are crucial for the financial services sector. Note that this is a personal publication of the author in such capacity and is not a publication of Shearman & Sterling LLP.
[4]  In “Free Trade in UK-EU Financial Services – How Best to Structure a Brexit Free Trade Deal,” Mr. Reynolds further explains how a U.K.-EU FTA would achieve Enhanced Equivalence and provide more certainty for all stakeholders.

Authors and Contributors

Barnabas Reynolds

Partner

Financial Institutions Advisory & Financial Regulatory

+44 20 7655 5528

+44 20 7655 5528

London