Achieving regulatory equivalence will be ‘poor and burdensome’ for UK financial services providers in the post-Brexit world, German Member of European Parliament (MEP) Markus Ferber has told IFLR.
In an unprecedented move, last Thursday the UK public voted to leave the EU. In doing so it left the single market too, explained Ferber: “At the end of the withdrawal process there will be no automatic access to the single market…the UK will be a third country like any other.”
This would see UK financial institutions required to adopt an equivalency regime for third country access as found in many – but not all – pieces of EU financial services legislation.
It’s in the Alternative Investment Fund Managers’ Directive (AIFMD) and the Markets in Financial Instruments Directive (Mifid) II, for example, but absent from the Capital Requirements Directive.
It’s generally thought that equivalence shouldn’t be too difficult for Britain to achieve given that it has always, and continues to, operate under these rules – in theory, it should be the most equivalent third country in the world.
“Suppose we were actually exiting the EU tomorrow. If you were running a compliant regime on Tuesday, it would be difficult to say it’s no longer compliant – and so equivalent – on Wednesday,” said Lisa Cawley, partner at Kirkland & Ellis in London.
“That may be a bit like we’re having our cake and eating it too, so the EU may think equivalence is not such a good idea after all,” she added. “It’s very hard to say right now.”
The fear is that many financial institutions – particularly those from outside of the UK using London as a base to passport into the EU – will relocate, hitting the City’s competitiveness.
"The UK will be a third country like any other"
London Mayor Sadiq Khan has made preserving passporting rights, which are said to be worth an estimated £10 billion ($13.3 billion) to its economy, a top priority since the vote – but nothing is guaranteed until a deal is struck with Brussels.
The UK’s Financial Conduct Authority (FCA) said in a statement on Friday that all existing EU legislation will continue to apply until further notice, and that institutions should continue implementing incoming rules as they were.
Ferber added that the onerous process of achieving equivalence for each piece of legislation will also be “quite a blow for London as a centre for financial services. But this is what the UK voted for, and this is what the UK will get.”
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