The FCA letter:
- describes, compares and contrasts:
- the WTO’s rules on cross-border trade in financial services;
- “passporting” under EU law; and
- “third-country equivalence”, where its available under the sectoral directives;
- describes what asset management might look like under the WTO rules, instead of under the UCITS and Alternative Investment Fund Managers Directives;
- sets out the FCA’s initial thinking on the “optimal framework” for financial services regulation post-Brexit, using 5 principles generated by reference to the FCA’s statutory objectives:
- cross-border market access: “open markets are an important enabler of healthy competition“;
- support for the principle of consistent global standards where markets are also global: “to minimize the risks of regulatory arbitrage and fragmented markets [with] regulators working effectively together through international standard setting organizations“;
- cooperation between regulatory authorities: especially “where business is being done involving firms, customers and markets across different jurisdictions“. “A robust framework which provides for continued cooperation will be fundamental in enabling [the FCA] to meet [its] objectives“;
- influence over international standards: “to ensure that [UK] consumers are protected and markets are competitive and well functioning“; and
- the opportunity to recruit and maintain a skilled workforce; and
- describes some of the potential advantages of being outside the EU, from an FCA perspective: “greater flexibility to set rules that are specifically tailored to domestic markets and consumers“. However, the EU frameworks allow for some flexibility; and the UK’s ability to be more flexible might be tempered (even post-Brexit) by the need to comply with international standards.
The European Parliament’s Briefing Paper looks at “Third-country equivalence in EU banking legislation“, but it covers a wider range of topics than its title suggests (including passporting and equivalence under Solvency II). It notes, in particular, that “Prima facie “Brexit” would mean that [the] UK loses its status of EU Member State and become[s] a third-country … It would then no longer benefit from the EU Passport for financial services … the UK Trade Minister … recognized that passporting was likely to end with Brexit but called for another form of relationship. According to [him] equivalence is not going to be ‘good enough’” – an assertion that’s almost certainly true, from UK perspective (at least).
These documents are well worth reading if you have an interest in any of these issues, or your business might be affected by Brexit.