On 11 December 2018, the House of Commons’ Treasury Committee published a report (the Report) on the Government’s and Bank of England’s analysis of the draft Withdrawal Agreement (our blog on the former analysis can be found here).
The Report documents evidence collected in the Treasury Committee’s inquiry of 3 to 5 December 2018, on the UK’s future economic relationship with the EU. Chapter 6 of the Report considers the impact of the draft Withdrawal Agreement on financial services. The key considerations of the Report with regards financial services are as follows:
- under the draft Withdrawal Agreement scenario, the financial services sector would lose its ability to sell financial services across the EEA via the EEA’s financial services passporting arrangements. The draft Withdrawal Agreement suggests that to remedy this, the existing autonomous frameworks for equivalence would need to be expanded;
- the Treasury Committee examined the prospect of the UK and the EU recognising each other’s regulatory frameworks for financial services as equivalent. Granting this equivalence would make certain services and products provided by UK firms acceptable for regulatory purposes in the EU, and vice versa. Andrew Bailey, Chief Executive of the FCA, comments that there is substantial scope for improving the current EU equivalence regime. Philip Hammond, Chancellor of the Exchequer, stated his belief that the EU recognises the problems with the current equivalence regime, and that both sides will work together to bring about the necessary improvements;
- during the implementation period, the UK would no longer have a vote in the European Supervisory Authorities, and it would no longer be part of the EU legislative process. As such, it could no longer directly vote upon legislative or regulatory actions that would impact upon the UK’s financial sector. Yet, in the implementation period, it would have to implement such actions. The FCA, in its own report, appeared comfortable with this during the implementation period – as supported by Sam Woods, CEO of the PRA. Andrew Bailey, CEO of the FCA, did however note concern about an extended or permanent period of rule taking; and
- with regards a no deal Brexit scenario, the UK would default to a ‘third country’ relationship with the EU. Sir John Cunliffe, Deputy Governor of the Bank of England, discusses the technical impact of this on cross-border financial services trade. The Governor of the Bank of England however offers reassurance on the ability of the financial sector to withstand such a scenario.