UK Finance has published a report that proposes an alternative model for a future trade framework for banking and capital markets services between the EU and the UK. It is based on the premises that: (i) in the near future the EU and the UK will have separate regulatory jurisdictions, which are nevertheless part of a developed regional market for banking and capital markets that provides critical services for customers; and (ii) the EU and the UK wish to remain as closely connected as is politically, economically and socially feasible.The report states that an EU-UK framework for cross-border contracting of financial services should be based on three overarching principles:

• it should be based on a principle of mutual recognition of the regulatory approaches of the two sides. Mutual recognition can take a range of forms. Here its core pillar is mutual recognition of the authorised status of a firm from another market based on either: (a) an assessment of quality and capacity of the regulator providing that authorisation, (b) the comparability of the specific regulatory framework to which that firm is subject, or (c) both;
• it should approach the question of cross-border contracting by assessing the nature of the customer seeking a provider in the other market. The report argues that these users can be placed in three broad categories, each with a unique and important economic role. However, what differentiates them is their level of sophistication as users of financial services, and the commensurate level of concern that should be attached to their protection as consumers. The report uses this distinction to assess the terms on which customers could be provided with the freedom to contract cross-border. The three broad categories are: large sophisticated institutions, financial professionals and small companies and retail customers; and
• an EU – UK regime for cross-border contracting of financial services should be based on a very high degree of regulatory and supervisory cooperation between the EU and the UK.

Based on the above the report argues that the EU and the UK could offer three reciprocal commitments covering the three classes of customers mentioned above:

• a qualified counterparties commitment, allowing certain forms of large, sophisticated service users such as governments and large banks and companies to contract cross-border;
• a professionals commitment, allowing a defined set of professional service users to contract cross-border; and
• a smaller commercial and retail commitment, allowing agreed forms of smaller commercial and retail customers to contract cross-border for defined services.

The cross border commitments would be governed by six key protocols to enable trade in cross-border services to be properly competitive with local providers. Some of these are established WTO principles of non-discrimination.

View Supporting Europe’s economies and citizens: a modern approach to financial services in an EU-UK Trade Agreement, 16 November 2017