The House of Lords EU Committee has published a report entitled, Brexit: the future of financial regulation and supervision. Key points of interest in the report include:
- in agreeing the relationship between the UK and the EU post-Brexit, both sides should favour an end state allowing mutual market access. Fragmentation would lead to costs increasing and to financial stability deteriorating;
- in defining the future environment for financial services, regulation and supervision are key. Brexit will not automatically entail divergence from the EU’s standards, and there are sound reasons for the UK to maintain a high degree of regulatory alignment with the EU in financial services as part of preserving mutual market access;
- an agreement based merely on the EU’s present ‘equivalence’ framework would not be a reliable long-term basis for either the UK or the EU. Any form of alignment that renders the UK a de facto rule taker would not be acceptable, given that future EU regulation may not be appropriate to the needs of the UK economy;
- an agreement on mutual access would need to be underpinned by broad and deep supervisory cooperation between the UK and EU. The foundations for this already exist;
- the UK Government needs to offer clarity on both the future relationship it will seek to achieve in the second phase of negotiations with the EU, and on transitional arrangements;
- putting in place a suitable domestic regime cannot mean abandoning the international standards that have been crucial to repairing the global financial system since the 2008 global financial crisis. The UK must continue to invest in and promote global standards if it wishes to see them maintained; and
- international standards could provide a bridge between the UK and the EU in defining a future relationship based on shared outcomes, rather than the literal interpretation of rulebooks.