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  • Giacomo Breda

Brief analysis and reflection on the equivalence of the regulatory framework of the securities marke


If the United Kingdom leaves the EU but remains a member of the EEA (European Economic Area, it is currently the EU, plus Iceland, Liechtenstein and Norway), the direct impact on the financial sector would be minimal. In the United Kingdom, all EU legislation on the single financial services market is integrated and applies throughout the EEA. If the United Kingdom also comes out of the EEA, this kind of agreement will not be possible unless the British government accepts the EU's fundamental principles of free movement of persons. The United Kingdom, in the current official position of the government, states that freedom of movement will end with the implementation of Brexit, although differences of opinion within the UK Government are becoming increasingly garish. Some ministers now seem to favor a "softer" Brexit where economic stability takes priority over immigration control. So it is important to understand how the EU and EEA withdrawal from the UK market would affect the financial services industry in the United Kingdom. It would be feasible for the United Kingdom to have an "equivalent" EU legislation on the provision of certain financial services and what would this new hypothesis mean? When considering access to a market, businesses should consider not only whether it is possible to provide services on a cross-border basis or through a local business branch but even if you can contact any customers and/or market services in that jurisdiction. Consistent with the principles of freedom to provide services, companies that have financial passport rights also have the option of marketing services locally. In the absence of Community rules, companies in the third country generally need to consider the rules of each EU country to understand whether they are capable of marketing or promoting services in that country and in what form of marketing and what kind of customer could be acceptable and allowed. Common restrictions include restrictions on customer retailing and the bans on certain forms of direct marketing. Any company that carries out an activity that in turn requires authorization in any sector in the EU (including banks, investment firms, fund managers and insurers), the current European legislation allows it to do so in one of the following ways:

  • by prior authorization in the competent Member State,

  • by providing cross-border services from the Member State in which it is authorized (home Member State) to customers in another Member State (host Member State)or by using "European passport for the provision of financial services" within the framework of the relevant legislation,

  • providing services and creating a branch in the host Member State and using the specific branch or branch branch passport on the basis of the relevant legislation,

  • by requesting a local agreement from the regulator of the Member State concerned,

  • or finally where the concept of equivalence applies by means of an appropriate registration following an equivalence decision.

The passport, either from the parent company or from a branch/subsidiary, requires notification to the relevant regulatory authority. Except for exceptional circumstances, regulators in the host state must accept it and should not impose prudent obligations on passport activity. However, depending on the sector, the local regulator for customer classification and whether the passport is issued by branch or specific services may apply some protection rules to local investors in the host country.

Following this principle, if the United Kingdom left the EEA, none of them "passports" existing in the United Kingdom companies will have the possibility to be used and be used in ordinary operation. Most UK banks, insurers, large investment and asset management companies have different passports to continue doing business with customers in many other EU jurisdictions. If they wanted to continue doing business with these customers without setting up a regulated entity elsewhere in the EU, it could be argued, from the point of view of the European institutions, that no service can be provided in any other Community state. Would it be possible to accept deposits from UK customers only in the UK? However, any topic of this kind and gender should be assessed on a case-by-case basis, which would render ordinary operation impossible, both the precise nature of the activity involved and the promotion and marketing of such activity. The issue should be analyzed in accordance with British legislation and on the basis of the laws of the Member States. An assumption might be that of relying on the relevant British law and making it considered "equivalent" to EU legislation, but this would mean a political defeat for the European institutions. It goes without saying that the discussion, even at the political level, focuses heavily on the process of equivalence in investment firms, but the equivalence procedure is a long-term process and unsecured outcome. Article 47 of the Capital Requirements Directive 4, like its previous CRD III law, allows each Member State to authorize a branch of a bank in a third country, provided that the Member State informs the Commission for the first time European Banking Authority and the European Banking Committee. In addition, Article 47 paragraph 3 allows the EU to treat branches of a particular third-country bank identically across the EU by means of agreements with one or more third countries. This paragraph is very important and could be invoked for British and British credit bureaus would be preferable to negotiate with each individual EU Member State individually. Article 48 of the Directive allows the EU to agree with one or more third countries on the supervision of institutions based in the EU or in a third country on a consolidated basis. The third-country regulators regulators participating in colleges established under Article 116, paragraph 6. The resolution authorities of third countries can also participate in a resolution colleges in accordance with Article 88, paragraph 3 of the Bank Recovery and Resolution Directive (BRRD). Participation in these aggregating meetings depends on the meaning of the third country supervisor for the banking group and the confidentiality prescriptions considered "equivalent". As a third country, the United Kingdom should ensure that the Bank of England participates in these aggregating meetings at the European Central Bank. However, British regulators would be only observers considering that the United Kingdom with Brexit would no longer be subject to EU legislation. CRD 4 does not envisage cross-border service. This is due to the fact that it is generally considered that the assumption of deposits, as with asset management, or a service that is provided where the account is opened. Of course, there may be local restrictions on the marketing of such a cross-border service to customers in an EU Member State similar to the UK's financial promotion scheme limiting the promotion of offshore deposits in the United Kingdom. CRD 4 also requires third country schemes to be considered equivalent for certain third-country exposure classes to benefit from lighter capital requirements. For example, exposures to third country banks, investment firms, central counterparties and exchanges should be subject to prudential and supervisory requirements at least equivalent to those of the EU in the calculation of capital requirements for credit risk (Article 107 of Capital Requirements Regulation EU n.575 / 2013). These provisions are likely to be relevant to EU credit insti- tutions and investment firms with exposures to post-Brexit UK institutions.

If there is no equivalence regime between the EU and the UK, would it be conceivable, then, that EU financial players and EU institutions would prefer to do business with North American or Asian financial institutions and players subject to "equivalent" schemes?

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