Following the UK General Election the Conservative Party has won a majority of at least 76 seats in the House of Commons, its biggest election victory since 1987. With one constituency left to declare at the time of writing, the Conservatives have 364 seats, Labour 203, the SNP 48, the Liberal Democrats 11, the DUP 8, Sinn Fein 7, Plaid Cymru 4, the SDLP 2, the Green Party 1, the Alliance Party 1, and the Brexit Party 0.

With a significant majority the new Conservative Government appears to be on course to get the draft Withdrawal Agreement and Political Declaration on the future EU / UK relationship, as amended in October, approved in the House of Commons.

Once the UK has approved the divorce deal, the EU needs to sign off on it.

The European Parliament, including the MEPs from the UK, must consent by simple majority to the draft Withdrawal Agreement – but does not have the power to amend it. In this case, the Council of the EU (Council) needs to adopt it by super-qualified majority. This means it needs to get support of 72% of the 27 participating Member States (or 20 Member States), and the support must also represent 65% of the population of the 27 Member States. Although the UK is still a full member of the EU with full rights in the Council, it is not participating or taking part in the Council’s decisions concerning Brexit.

There is no role for national parliaments of the 27 Member States in the context of the draft Withdrawal Agreement, meaning for example that the French, Spanish or German parliaments do not have to agree to it.

At present we expect the process for ratifying the draft Withdrawal Agreement to be completed by both sides before 31 January 2020 meaning that there will be no further extension to the Article 50 process.

A core part of the draft Withdrawal Agreement is that there shall be a “transition or implementation period”. This period begins when the UK leaves the EU and ends, by default on 31 December 2020. However, the UK and EU can jointly agree, on a one-off basis, to extend that period by a further period of up to two-years.

During the transition period, the UK has to follow most of EU law in (mostly) the same way as it does now as a Member State. However, it will no longer have representation and voting rights in the EU institutions when the EU makes decisions about how EU law should change. There are some exceptions to this continuation of EU law, which are set out in the draft Withdrawal Agreement itself.

Once the draft Withdrawal Agreement is approved, the UK and EU negotiations will move onto the future relationship. At present we don’t have much sight of what the future relationship will look like apart from what is contained in the Political Declaration on the future EU / UK relationship.

From the financial services perspective the Political Declaration does not give too much away. The relevant provisions are set out in paragraphs 35 to 37 and are reproduced below:

  1. The Parties are committed to preserving financial stability, market integrity, investor and consumer protection and fair competition, while respecting the Parties’ regulatory and decision-making autonomy, and their ability to take equivalence decisions in their own interest. This is without prejudice to the Parties’ ability to adopt or maintain any measure where necessary for prudential reasons. The Parties agree to engage in close cooperation on regulatory and supervisory matters in international bodies.
  2. Noting that both Parties will have equivalence frameworks in place that allow them to declare a third country’s regulatory and supervisory regimes equivalent for relevant purposes, the Parties should start assessing equivalence with respect to each other under these frameworks as soon as possible after the United Kingdom’s withdrawal from the Union, endeavouring to conclude these assessments before the end of June 2020. The Parties will keep their respective equivalence frameworks under review.
  3. The Parties agree that close and structured cooperation on regulatory and supervisory matters is in their mutual interest. This cooperation should be grounded in the economic partnership and based on the principles of regulatory autonomy, transparency and stability. It should include transparency and appropriate consultation in the process of adoption, suspension and withdrawal of equivalence decisions, information exchange and consultation on regulatory initiatives and other issues of mutual interest, at both political and technical levels.

The future EU-UK financial services relationship will be governed by equivalence rather than passporting under the EU Single Market. In the Political Declaration both the UK and the EU are endeavouring to conclude equivalence assessments by the end of June 2020 which appears to be fairly ambitious. In July this year, the Commission set out a communication setting out its overall approach to equivalence and how the regime will cope with Brexit will be one of the key themes of 2020.