European Union: UK Government Publishes White Paper On The Future Relationship Between The UK And The EU

On July 12, 2018, the U.K. Government published a White Paper setting out its approach and proposals for a future relationship between the U.K. and the EU. The Government is proposing new economic and regulatory arrangements for financial services that would give both the EU and the U.K. autonomy over decisions regarding access to its market. The Government acknowledges that both the EU and the U.K. will want to legislate for their own interests to take account of the differences in the EU and U.K. markets, business models as well as financial stability exposures.

The Government does not intend to replicate the existing EU passporting regime, which is reserved for countries falling within the single market. Instead, the Government intends that the new arrangements would be based on an enhanced equivalence regime that would enable the cross-border provision of the most important financial services and would preserve regulatory and supervisory cooperation. The Government states that the existing equivalence frameworks would need to be expanded, because the EU's equivalence regime does not cover the breadth of U.K. and EU financial services provision and because there are no provisions which ensure a transparent and predictable process with lasting effect. Notably, these issues were highlighted by Shearman & Sterling partner, Barnabas Reynolds, in his books, "A Template for Enhanced Equivalence," and "EU-UK Financial Services After Brexit Enhanced Equivalence - A Win-Win Proposition", suggesting that the future U.K. and EU arrangements for financial services should be based on the EU equivalence regime with the gaps filled and the process overhauled to ensure a transparent and robust system. An analysis of the position for each sector of the financial market and the steps needed for equivalence were discussed in our client note, "Brexit and Equivalence: Review of the Financial Services Framework Across All Sectors."

The Government proposes that at the end of the transitional period, i.e., December 31, 2020, reciprocal recognition of equivalence under all existing third-country regimes would take effect. This is intended to give businesses certainty and the ability to plan accordingly. Thereafter, future equivalence determinations would be an autonomous matter for the EU and for the U.K. under a bilateral arrangement.

The bilateral arrangement would include provisions for:

Common Principles for the Governance of the Relationship

Equivalence decisions would be based on an evidence-based judgement of the equivalence of outcomes achieved by the respective regulatory and supervisory regimes. The arrangement would include common objectives, such as maintaining economic relations of broad scope and preserving regulatory compatibility and supporting collaboration (both bilaterally and in multilateral fora). The overall aim would be to ensure financial stability and the prevention of regulatory arbitrage.

Extensive Regulatory Dialogue

To ensure equivalence is maintained over the long term, the U.K. and the EU would be able to comment on each other's proposals at an early stage through a structured consultative process of dialogue at the political and technical levels. This approach would still respect the autonomy of each side's legislative process and decision-making.

Extensive Supervisory Cooperation

Close supervisory cooperation would be necessary for firms posing systemic risk and/or providing significant cross-border services on the basis of equivalence. Both the U.K. and the EU would need to commit to reciprocal and close cooperation to protect consumers, financial stability and market integrity with codified procedures for routine cooperation and for coordination in crisis situations. In addition, there would be reciprocal participation in supervisory colleges and other supervisory structures, including information exchange, mechanisms for consultation over decisions affecting the other party and arrangements for the supervision of financial market infrastructure, such as CCPs, payment systems and trading venues.

Predictable, Transparent and Robust Processes

The Government asserts that a transparent process would be needed to ensure the future economic relationship is stable, reliable and enduring. It is envisaged that some of these processes would be bilaterally agreed and treaty-based while others would be achieved through autonomous measures. In particular, the Government proposes:

  1. a transparent assessment methodology for assessing equivalence, based on clear and common objectives. Consultations with industry and other stakeholders and the potential use of expert panels would be a part of the process.
  2. a structured withdrawal process in the event that either party wished to withdraw equivalence or if one party no longer sought equivalence in a particular area. This would include an initial period of consultation on possible solutions to maintain equivalence, clear timelines and notice periods, which are appropriate for the scale of the change before it takes effect. It would also be imperative to build-in safeguards for acquired rights to avoid risks to financial stability, market integrity or consumer protection.
  3. a presumption, in line with WTO principles, against unilateral changes that attempt to narrow the terms of existing market access regimes, other than in exceptional circumstances. This would include avoiding future changes to the way equivalence is assessed and requiring a new decision to be taken before an existing equivalence decision lapsed.

None of these proposals have been subject to the latest round of close votes in the U.K. parliament. The U.K.

Government's move from the "mutual recognition" approach to an equivalence one reflects the EU's position more closely, as evidenced by Michel Barnier's recent speech at the European American Chamber of Commerce in New York. The EU has stated that it is considering the proposals.

The White Paper is available at: The_future_relationship_between_the_United_Kingdom_and_the_European_Union.pdf and Mr. Barnier's speech is available at:

You may like to see Mr. Reynolds' book, "A Template for Enhanced Equivalence" and " EU-UK Financial Services After Brexit Enhanced Equivalence - A Win-Win Proposition". Both books provide greater detail on how the equivalence based approach can be used to achieve many of the Government's proposals, available at: and You may wish to see our client note, "Brexit and Equivalence: Review of the Financial Services Framework Across All Sectors," available at: and other Brexit-related materials, available at:

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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