On 8 October 2020, HM Treasury published a letter from John Glen MP, Economic Secretary to HM Treasury, to Baroness Donaghy, Chair of the House of Lords’ EU Services Sub-Committee. The letter responds to a previous letter from Baroness Donaghy concerning UK-EU equivalence decisions, future UK-EU regulatory cooperation and the future regulatory framework for UK financial services.
Key points in the letter include:
- The UK and EU start from a position of having similar financial services regulation and a history of close cooperation, so these should be straightforward assessments. The EU has decided to make, at most, limited equivalence decisions with respect of the UK. The Government is considering next steps.
- The upcoming guidance document on the UK’s equivalence framework will set out in more detail the process and the principles that underpin the UK’s equivalence framework. The UK is committed to an outcomes-based approach to equivalence that acknowledges how different approaches to regulation can achieve the same regulatory objectives. The operation of an outcomes based approach to equivalence is based on common high standards and cooperation with overseas jurisdictions to ensure they achieve their objectives and can be effectively monitored thereafter.
- In terms of the differences between the UK and EU’s respective approaches to regulatory cooperation, in terms of structure, the UK has put forward the concept of having an annex within the Free Trade Agreement (FTA) that would cover regulatory cooperation in financial services. The EU would prefer to agree to regulatory cooperation outside of the FTA. The UK feels that this difference of structure, whilst significant, does not inherently introduce any limitations on future engagement between the UK and the EU.
- The Government will be publishing a consultation paper on the second phase of the Financial Services Future Regulatory Framework Review. It will carefully consider the responses received to its first consultation, and use these to inform a second more detailed consultation in 2021. This consultation will set out specific proposals for delivering the framework, and will require further in-depth engagement with Parliament. When developing this model, the Government is looking to other countries and regulatory systems to determine best practice.