Historic Publications

A new UK/EU relationship in financial services

The proposals in the UK Prime Minister’s speech on 17th January and the White Paper on 2nd February will require a new construct for cross-border regulatory coordination between the EU and the UK, which will operate in a complex legal and regulatory environment (outside the EU/EEA single market).

CMS and the Legatum Institute Special Trade Commission have produced a joint report which looks at how the new UK/EU partnership might work in the field of financial services. The report aims to move away from binary and simplistic discussion (such as ‘passporting’ versus ‘equivalence’) and to contribute to the development of a more informed consensus. The partnership concept that the report envisages is flexible to cater for all political outcomes and is highly negotiable.

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The report seeks to explain and illustrate the spectrum of possibilities, but it does not attempt to fix on detailed measures or on the priorities for each sub-sector/area of FS. We would like to acknowledge the contribution of various recent reports in this field1 which have been very helpful in the writing of this report.

Key findings

Avoiding confusion

The debate about Brexit and financial services has been confusing for the public and practitioners. Much of the jargon in use means different things to different people. Brexit will require a joint approach combining the practice and terminology of free trade negotiation on one side and the world of European financial services regulation on the other.

We have coined the expressions ‘dual regulation coordination’ (or ‘DRC’) and ‘dual regulation barriers’ (or ‘DR barriers’) to enable us to address cross-border supply (in the broadest possible sense) and to reference the broad variety of barriers from a host state regulatory regime and the measures used to coordinate dual regulation between home and host state (and thereby eliminate or reduce these barriers). 

We wanted to include all of these measures and not to use the language of any one example (such as ‘passporting’, ‘substituted compliance’, ‘home state regulation/supervision’, ‘deference’, ‘mutual recognition’ and so on). We also wanted to differentiate between the measures themselves (which are the objective/benefit to be achieved/agreed); and the criteria or pre-conditions for the application of such measures (such as findings of ‘equivalence’, ‘comparable regulation’, ‘justification by quality of regulatory regimes’, ‘harmonisation’ and so on).

We have referred to a ‘DRC agreement’ between the UK and EU to address DRC measures. This is intended as a neutral term but it could be described using other terminology such as treaty/accord, MRA or mutual recognition/bilateral/super equivalence.

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