Since the result of the EU Referendum, the City has been considering the best options for the financial services sector as Britain plans to leave the EU. There is continuing uncertainty as to what relationship the UK will have with the EU following its departure from the EU, but the importance of maintaining access to the single market for financial services has been stressed by the FCA. In Europe, some progress has been made on resolving the single market access issue in relation to the financial services sector.
Importance of access to the single market
The need to retain equivalent regulation which would allow access to the single market was emphasised by the FCA recently in a speech by Andrew Bailey, its new CEO. Confirming that the FCA will continue to implement EU legislation while the UK remains a member of the EU, Mr Bailey stressed the importance of cross-border trade in financial services, highlighting the need for "robust global standards of regulation" to support such trade. The standards, Mr Bailey believes, "can operate simultaneously at both EU and global level". Signposting the FCA's intention to maintain a high level of regulation equivalent to that of the EU, Mr Bailey specifically highlighted the FCA's ability to deal with equivalence standards noting that "[U]nlike for trade in goods, we will not need to scour the world to find experts in a long forgotten skill – we are familiar with equivalence standards". This indicates that the City should not expect any lessening or relaxation of regulatory standards in the financial services sector. In addition, Mr Bailey's reference to equivalence standards could be read as an indication that the Regulator would support obtaining equivalent status as one possible route into the single market for financial services firms.
Industry bodies are also working closely with their members to develop the negotiation priorities for the financial services sector and how best to ensure that these priorities are understood and incorporated into the wider negotiation strategy for the UK.
EEA Agreement Developments
Interestingly, after several years in the long grass, progress has also been made on the incorporation of financial services legislation into the EEA Agreement. While in principle single market access for financial services is one of the benefits of EEA membership, this has been complicated by the fact that the EEA Agreement does not apply for European Supervisory Authorities (ESAs) and following the financial crisis of 2007/2008 much recent EU financial services legislation assigns significant roles to the ESAs. As a result certain EU financial services legislation (for example AIFMD) is yet to be incorporated into the EEA Agreement.
The European Commission has adopted a decision of the Council of the EU regarding the position to be taken by the EU in relation to the incorporation of the role of ESAs into the EEA Agreement. While the EEA Joint Committee (consisting of European Commission representatives and the three non-EU EEA members) need to adopt a joint committee decision on the amendments necessary to the EEA Agreement, this step by the European Commission is a positive development towards fully opening the single market in financial services across the EEA.
With the prime minister confirming Article 50 is not going to be triggered until the UK has worked out its negotiating position, now is a good time to liaise with regulators and industry bodies to ensure that the financial services sector's requirements are meet as fully as possibly in post Brexit Britain. We will continue to work closely with our clients and industry bodies to assist in raising these requirements in advance of the forthcoming negotiations.
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This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, August 2016