Equivalence

European Union (EU) regulation.

In certain cases the EU may recognise that a non-EU legal, regulatory and/or supervisory regime is 'equivalent' to the corresponding EU framework.

That recognition, in turn, means authorities in the EU may rely on supervised entities’ compliance with the equivalent non-EU framework, and allow the entity to operate more freely than it might otherwise be able to (without equivalence).

This approach is designed to bring benefits to both the EU and third-country financial markets.

The significance of the equivalence concept, for UK financial services, is that the UK might choose, post-Brexit, to keep its regulatory regime closely aligned with the EU regime, in order to benefit from the possibility of equivalence.

Equivalence recognition unlikely

"In addition to disrupting supply chains, Brexit has caused some fragmentation of banking activity for corporates.

It seems increasingly unlikely that we shall see ‘equivalence’ recognition for UK/EU financial services that were not covered by the Trade & Cooperation Agreement.

Treasurers will want to monitor the expiry dates (some in 2022) of various temporary permissions that came into effect post-Brexit, and to ask their banks whether there may be any implications for corporate clients."

The Treasurer magazine, Issue 4, 2021, p31 - Treasury in 2022.

Equivalence and passporting

"In brief, equivalence is the willingness of one regulator to accept that another regulator's rules achieve the same regulatory outcomes as their own, and so some element of cross-border activity can be allowed.

Equivalence must be agreed, but is subject to negotiation, market by market.

Passporting is the acceptance that once permitted to trade in one state, a business can trade in another without further compliance requirements."

The Treasurer magazine, March 2017, p12 - Technical briefing.

See also

• Brexit
• EU-UK Trade and Cooperation Agreement
• European Economic Area
• European Union
• Four way equivalence model
• Free movement of labour
• Gold-plating
• Harmonisation
• Passporting
• Prudential Regulation Authority
• Schengen Area
• Single Market

Other links

Rethinking UK financial services regulation after Brexit, UK in a Changing Europe, December 2020

UK-EU future relationships: options for equivalence, Institute for Government, February 2020