ARTICLE
25 October 2018

Enhanced Equivalence In The Context Of Brexit

AO
A&O Shearman

Contributor

A&O Shearman was formed in 2024 via the merger of two historic firms, Allen & Overy and Shearman & Sterling. With nearly 4,000 lawyers globally, we are equally fluent in English law, U.S. law and the laws of the world’s most dynamic markets. This combination creates a new kind of law firm, one built to achieve unparalleled outcomes for our clients on their most complex, multijurisdictional matters – everywhere in the world. A firm that advises at the forefront of the forces changing the current of global business and that is unrivalled in its global strength. Our clients benefit from the collective experience of teams who work with many of the world’s most influential companies and institutions, and have a history of precedent-setting innovations. Together our lawyers advise more than a third of NYSE-listed businesses, a fifth of the NASDAQ and a notable proportion of the London Stock Exchange, the Euronext, Euronext Paris and the Tokyo and Hong Kong Stock Exchanges.
The U.K.-EU financial services Brexit discussions are focused on refinements to the existing EU law concept of equivalence and how to make it work in the context of Brexit.
European Union Government, Public Sector

The U.K.-EU financial services Brexit discussions are focused on refinements to the existing EU law concept of equivalence and how to make it work in the context of Brexit. In its White Paper,1 the U.K. Government has proposed that trade in services generally should operate on the principle of mutual recognition, and it proposes an (enhanced) equivalence basis for trade in financial services. The thinking behind Enhanced Equivalence was developed by partner Barnabas Reynolds in his Template for Enhanced Equivalence.2 In his new publication, Free Trade in UK-EU Financial Services – How Best to Structure a Brexit Free Trade Deal,3 he addresses the topic again, and explains why two omissions in the White Paper from what was contained in the Template should be fixed. First, an independent tribunal should oversee the application of the equivalence definition. Secondly, the equivalence concept should extend across all financial services areas from the outset.

In addition, Mr. Reynolds shows how Enhanced Equivalence could best be achieved through a chapter in a U.K.-EU Free Trade Agreement (FTA) which contains all the operative provisions, and he proposes wording for a draft chapter.4 An all-encompassing FTA chapter would provide a stronger legal underpinning, ensuring maximum predictability for the industry. This approach would allow the U.K. and the EU to maintain the current levels of cooperation and to continue to develop a pan-European regulatory framework, building on their successful collaboration over the past years to mutual gain.

Footnotes

1The White Paper, entitled “The Future Relationship Between the United Kingdom and the European Union,” is available here.

2“A Template for Enhanced Equivalence: Creating a Lasting Relationship in Financial Services Between the EU and the UK,” Barnabas Reynolds, published by Politeia, 17 July 2017, available here. Note that this is a personal publication of the author in such capacity and is not a publication of Shearman & Sterling LLP.

3In his fourth book for Politeia, “Free Trade in UK-EU Financial Services – How Best to Structure a Brexit Free Trade Deal” (available here), Partner, Barnabas Reynolds, explains further why these two changes are crucial for the financial services sector. Note that this is a personal publication of the author in such capacity and is not a publication of Shearman & Sterling LLP.

4In “Free Trade in UK-EU Financial Services – How Best to Structure a Brexit Free Trade Deal,” Mr. Reynolds further explains how a U.K.-EU FTA would achieve Enhanced Equivalence and provide more certainty for all stakeholders.

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