By Christopher Walker
On 24 December 2020, the UK and EU agreed Trade and Cooperation Agreement (“TCA”), finalising a long-anticipated post-Brexit agreement and outlining the future economic terms between the parties.
The TCA commits both parties to the implementation of internationally agreed standards in the financial services sector, which is excluded from the “most favoured nation” clause in terms of any future trade deals with third countries; the TCA also commits the parties to keeping their markets open on a non-discriminatory basis to firms in the UK and EU subject to financial services firms established in the relevant country.
In respect of UK financial services firms, the following areas will remain of interest:
- A brief UK-EU statement in the form of the Joint Declaration on Financial Services Regulatory Cooperation has been issued, noting that both parties seek to agree a framework for “structured regulatory cooperation” beginning in the form of a Memorandum of Understanding (“MOU”) with a target agreement date of March 2021 – albeit this is subject to possible extension;
- The Joint Declaration also notes that there will be further discussion between the UK and EU on next steps regarding equivalence determinations between the parties – only one equivalency decision in respect of UK central counterparties to continue operating in the EU beyond the end of the transition period has been granted so far, with the EU previously noting that this decision was made due to the risk to financial stability presented in respect of derivatives trading in the short-term;
- However, “passporting rights” for firms have ended and both UK and EU firms will require local regulatory authorisation to operate within those jurisdictions (e.g. UK firms can no longer utilise passporting rights available under MiFID II, AIFMD, UCITS IV etc.); and
- The Temporary Permissions Regime (“TPR”) has now entered into effect for firms that entered into the TPR by the prior deadline and other firms will fall within the Financial Services Contracts Regime (“FSCR”) through which they can service their existing contracts prior to exiting to the UK market.
Various existing MOUs are now in force which will provide a degree of certainty for the financial services industry - these MOUs are part of the initial regulatory framework which will govern cross border cooperation and mutual assistance between the UK and EU regulators.
For instance, the FCA has agreed:
- A multilateral MOU with the EEA National Competent Authorities (NCAs) covering supervisory cooperation, enforcement and information exchange; and
- A MOU with the European Securities and Markets Authority (ESMA) covering supervision of Credit Rating Agencies and Trade Repositories.
Full details of the existing MOUs agreed between the UK and EU regulators can be found here.