- The EU will take a strict approach to supervision of the City of London after Brexit.
- The European Commission’s financial services head said any future relationship between the City and the EU will have to include high levels of monitoring.
- Britain and the EU are currently discussing a new post-Brexit relationship for financial services, most likely based around the principle of equivalence.
- Equivalence is a framework whereby the EU acknowledges that the legal, regulatory, and supervisory regime of a non-EU country is as good as its own.
LONDON – The European Union wants to adopt a strict approach to supervision of the City of London post-Brexit, a senior Brussels official has said.
Valdis Dombrovskis, the European Commission’s most senior official for financial services, said that any future relationship between the City and the EU’s financial sector will have to include high levels of monitoring to ensure that the UK is complying with new rules.
“We see that there is a need to strengthen systemic monitoring of continued compliance,” Dombrovskis said, according to a story from the Financial Times. “So this is one area where we will come with a more systematic approach.”
The UK and EU are holding talks to agree on a future relationship when it comes to financial services. Brexit will effectively nullify the current system of passporting.
Passporting rules allow EU finance companies to sell their services across the 28-member bloc with a local licence, rather than getting a licence to operate in each member country where it does business. Its use is tied to membership of the European Single Market. Britain is leaving the Single Market as part of Brexit and will no longer be able to do business using these rules once it has left the EU.
A new relationship must, therefore, be forged. Britain is currently proposing a system of so-called “advanced equivalence.”
Under the equivalence framework, the EU acknowledges that the legal, regulatory, and supervisory regime of a non-EU country is as good as its own and allows that state access to the financial services sector within the bloc. Countries like Singapore and the USA use a similar system to trade financial services with the EU.
The UK government has consistently maintained that it will seek to improve on existing requirements for equivalence of rules between the EU and outside countries.
The EU was initially sceptical of these plans – claiming it did not allow the bloc complete autonomy – but has softened in recent weeks. However, Dombrovskis’ comments suggest there is still a long way to go.
He said that the EU will not allow the UK to enter into a system of “super equivalence”, whereby all areas of financial services are immediately covered. The new relationship between the City and the rest of the EU will be analysed “sector by sector and legislation by legislation,” Dombrovskis said.
He made clear that discussions on implementing equivalence are at an “early stage.”
“We are, if you want, at a relatively early stage, because the UK white paper is actually the first time the UK clearly acknowledges that it is willing to build on this system of enhanced equivalence,” he said.
“We can now get into more detail and discuss what exactly that means, what areas are covered, are there some important areas missing and so on.”
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