Study Bay Coursework Assignment Writing Help<\/p>\n
Finding \u2018The Third Man\u2019: Untangling the UK\u2019s under EU financial systems On 23 June 2016, the United Kingdom triggered one of the most significant political and legal events of the 21st<\/sup> century by voting to leave the European Union in a \u2018Brexit\u2019. Amongst the many changes set to be wrought by this unprecedented move, Brexit has thrust the question of what will happen to European financial market regulation<\/a> once Britain leaves the shared market into the spotlight. Although at this stage, given the ongoing conjecture over when (and how) Brexit will occur, the position for the UK\u2019s future trade relationship with the EU, the likelihood, shape or duration of any transitional arrangements and the impact on UK financial institutions across Europe remain wholly unclear, it appears likely that a continuation of the current \u2018passporting\u2019 arrangements is unlikely to be feasible politically. This article considers the implications of Brexit<\/a> on the regulation of financial markets in the United Kingdom and the broader European Union. Specifically examining EU financial regulatory frameworks, this paper argues that the a two-way equivalence based arrangement for cross-border access to financial markets represents the most stable transitional arrangement for European finance in a post-Brexit market.<\/em><\/p>\n On 23 June 2016, the Given the unprecedented Prime Minister May\u2019s 17 Reflecting the broad strokes of Prime Minister May\u2019s speech and the White Paper, the Article 50 Letter confirms that the UK intends to leave the single market and proposes general implementation periods for certain regulatory reforms. Significantly, it notes that the UK and the EU have regulatory frameworks which, in a general sense, \u2018match\u2019, and that the \u2018divorce\u2019 negotiations should accordingly prioritise how the shift of regulatory frameworks is handled and how disputes are to be addressed. The letter accordingly identifies the key issue for financial services access in a post-Brexit market \u2013 namely, how, given the likelihood of future regulatory divergence between the UK and the EU, market access can be managed and mutual recognition of regulation assured. Significantly, whilst the letter is vague in respect of most aspects of the future legal reform required by Brexit, it does expressly reference a need to address the risk posed to British and European financial services<\/a> regulatory frameworks with a \u2018bold and ambitious\u2019 Free Trade Agreement. <\/p>\n Whether or not the UK will be able to succeed in negotiating the Free The concept of passporting relies on mutual recognition of prudential The idea of the UK as a \u2018third country\u2019 in the context of EU financial It Finance Pre-Brexit, Although it\u2019s clear that, under the hard Brexit envisioned by the Given the complex history of the equivalence provisions, it is not The Given Under centralised EU legislation, EEA-member state deposit-taking However, formal EU Equivalence frameworks also Equivalence can also unlock more favourable treatment with respect to certain categories of third country exposure for financial institutions. In a general sense, the detailed prudential requirements which are applicable to EU banks and other EU financial institutions provide for the making of equivalence determinations in a range of areas in order for the application of the same preferential treatment of third country exposures as would normally apply to EU exposures.[40]<\/a> In all exposure equivalence decisions, the responsibility to determine equivalence rests with the EC. Decisions are made by way of implementing acts or regulations. Although the EBA does not have a formal legislative mandate to Help the process, in practice it is regularly asked by the Commission to work on assessments.[41]<\/a> <\/p>\n At the With this UK law Third country Also Following Post-GFC, the regulation of The certification system, Similarly to the increased Pursuant to the EU On the other hand, endorsement So called Under the hard Additionally, As in the ESMA must further As drawn out in Section An It is relevant to The UK is equally invested in reforming the complicated The question of what this reformed framework would look Although A Articles \/ Books \/ B Legislation<\/em><\/p>\n Directive 2011\/61\/EU of the Directive 2013\/36\/EU of the Regulation (EU) No 575\/2013 of Regulation (EU) No 648\/2012 of Directive 2014\/65\/EU of the European Parliament and of the Council of 15 May 2014 on markets in Regulation (EU) No 600\/2014 of [1]<\/a> E. Ferran, \u201cThe UK [2]<\/a> [3]<\/a> [4]<\/a> [5]<\/a> [6]<\/a> J Amour, [7]<\/a> [8]<\/a> G. Tyler, \u201cFinancial Services: Contribution to the UK Economy\u201d (House [9]<\/a> [10]<\/a> Ibid.<\/p>\n [11]<\/a> TheCityUK, [12]<\/a> [13]<\/a> [14]<\/a> [15]<\/a> [16]<\/a> [17]<\/a> L Quaglia, \u2018The Politics of \u2018Third Country Equivalence\u2019 in Post-Crisis [18]<\/a> [19]<\/a> Moloney, above n 8, [20]<\/a> Ibid.<\/p>\n [21]<\/a> Ibid.<\/p>\n [22]<\/a> [23]<\/a> Ibid.<\/p>\n [24]<\/a> Above n 8, 114.<\/p>\n [25]<\/a> ECON Report on the on the proposal for a regulation on indices used [26]<\/a> Above n 5, 46.<\/p>\n [27]<\/a> Ibid.<\/p>\n [28]<\/a> CRD OJ L 176, 27.6.2013, article 21.<\/p>\n [29]<\/a> Fiechter et al, Subsidiaries [30]<\/a> Above n 5, 47.<\/p>\n [31]<\/a> Above n 28, article 25.<\/p>\n [32]<\/a> Above n 28, 127.<\/p>\n [33]<\/a> Above n 29, 127.<\/p>\n [34]<\/a> European Banking Authority, EBA\/REC\/2015\/01.<\/p>\n [35]<\/a> Above n 5, 47.<\/p>\n [36]<\/a> Above n 29, article 55.<\/p>\n [37]<\/a> Above n 29, article 116(6).<\/p>\n [38]<\/a> Ibid.<\/p>\n [39]<\/a> Regulation (EU) No 1093\/2010<\/em>.<\/p>\n [40]<\/a> OJ L 176, 27.6.2013, arts 107(3) and (4), 114(7), 115(4), 116(5), [41]<\/a> Above n 5, 48.<\/p>\n [42]<\/a> MiFID II, articles 39-43.<\/p>\n [43]<\/a> Financial Services and [44]<\/a> Above n 5, 49.<\/p>\n [45]<\/a> MiFIDII, arts 39-43.<\/p>\n [46]<\/a> L Quaglia, The Politics of \u2018Third Country Equivalence\u2019 in
\nequivalence frameworks post-Brexit<\/strong><\/p>\nAbstract:<\/h3>\n
I
\nINTRODUCTION AND CONTEXT<\/h2>\n
\nBritish public voted in a non-binding referendum to leave the European Union
\n(the EU<\/em><\/strong>)
\nby a margin of 52 to 48 per cent. The decision to remove Britain from the EU\u2019s
\nshared marketplace and political infrastructure in a \u2018Brexit\u2019 is an
\nunprecedented \u2013 and wholly unexpected \u2013 decision, and, since then, much
\nconjecture has been raised regarding what, exactly, this means from a socio-political,
\neconomic, and legal perspective. Helpfully, British Prime Minister Theresa May
\nhas told us that \u201cBrexit means Brexit\u201d \u2013 and it appears she is
\nserious. The passing by the UK Parliament of the Withdrawal from the European Union (Article 50) Bill 2016-17<\/em> on 13
\nMarch 2017 opened the way to the formal notification by the UK of its intention
\nto withdraw from the EU under Article 50 of the Treaty on European Union,
\nfollowed quickly on 29 March 2017 by the so-called \u2018Article 50 letter\u2019 to
\nEuropean Council President Tusk setting out Britain\u2019s intention to do so. <\/p>\n
\nnature of a state leaving the EU bloc \u2013 which has not occurred since the
\ninception of the European Economic Community via the Treaty of Rome in 1957 \u2013
\nthere is no historical precedent to provide guidance as to how this should (or indeed,
\ncould) occur. Notwithstanding the convenient tautology of \u2018Brexit [meaning]
\nBrexit\u2019 proffered by Prime Minister May, untangling how Brexit will occur \u2013 and
\nwhat it will mean for existing legal and regulatory frameworks \u2013 is somewhat
\nmore complicated than accepting that Brexit will occur come what may. As noted
\nby Ferran, there are \u2018there are several different versions of Brexit\u2019 to
\nconsider,[1]<\/a>
\nranging from a \u2018soft Brexit\u2019 (where the UK would cease to be a Member State of
\nthe EU but would continue to have access to the single market as a member of
\nthe European Economic Area (the EEA<\/em><\/strong>) or under a bespoke bilateral
\narrangement), through to a \u2018hard Brexit\u2019 whereby the UK would have no form of
\nassociate membership or other tailored trading relationship with the EU, and
\nwould presumably instead rely on its status as a member state of the World
\nTrade Organisation (the WTO<\/em><\/strong>) as a basis for future trade agreements.\n<\/p>\n
\nJanuary 2017 speech on the UK\u2019s \u2018negotiating objectives\u2019 as part of the Brexit
\nprocess clarified that the UK would not seek membership of the single market or
\nthe EEA \u2013 but rather would seek the \u2018greatest possible access\u2019 to the single
\nmarket through a new Free Trade Agreement which could theoretically, in certain
\nareas including financial services and regulatory frameworks, \u2018take in elements
\nof current single market arrangements.[2]<\/a>\u2019
\nPrime Minister May also contemplated the option of a \u2018phased implementation
\nperiod\u2019 \u2013 with the implication that a transitional arrangement of some form is likely
\nto be sought. Whilst helpful, these statements were light on detail, and those
\nhoping for more clarity in the UK government\u2019s 2 February 2017 White Paper on
\nBrexit (which called for \u2018the freest possible trade in financial services
\nbetween the UK and EU Member States) were left wanting, as the White Paper disposed
\nof discussions on financial services and regulation in four short paragraphs, all
\nof which referenced vague aspirations as to \u2018continued market access and
\ncooperation\u2019.[3]<\/a><\/p>\n
\nTrade Agreement imagined by the Article 50 Letter with a bespoke financial
\nmarket access arrangement which addresses these two issues is not, given the
\ncompeting interests of the EU and the UK in the post-Brexit economy of Europe,
\nclear. What is clear however is that under current EU law the UK will, following
\na hard Brexit, hold \u2018third country\u2019 status in relation to the EU financial
\nmarket,[4]<\/a>
\nand that the current \u2018passporting\u2019 arrangements used in the EU block are
\nunlikely to remain feasible politically.<\/p>\n
\nmeasures by member counties, coupled with minimum EU standards. It seeks to
\nminimise legal, regulatory and operational barriers to cross-border provision of
\nfinancial services in the European Economic\u00a0
\nArea (the EEA<\/em><\/strong>).[5]<\/a> A firm that is authorised by a regulator in one
\nMember State is therefore allowed to carry out the same permitted activities in
\nanother Member State (the \u2018passport\u2019). It can do so by either directly
\nproviding cross-border financial services, or by setting up a branch in the
\nother Member State. However, the integration of centralised rulemaking through
\nthe application of minimum EU standards means that, even if the UK were to be
\ngiven rights and protections similar to those currently in place, it would
\nremain possible that the UK could be simply outvoted in respect of any
\nregulatory proposals applicable in the UK which the UK had rejected.
\nPost-Brexit, the likelihood of the UK tolerating a European framework in which
\nit is bound by rules that it has not supported itself seems remote \u2013 for the
\npassporting system to be feasible, it is likely that the UK would have to be
\ngiven a veto vote over rules, or the ability to opt out of passporting on
\ncertain topic (sample nursing essay examples by the best nursing assignment writing service)s. Also relevant would be the difficult position of supranational
\nbodies such as the European Supervisory Authorities (ESAs<\/em><\/strong>), which harmonise
\nthe approach to supervision across the EU and have the right to step in
\ndirectly on matters in extreme circumstances \u2013 clearly, post-Brexit any UK role
\nfor these bodies would be unworkable. Further, the EU regulations which provide
\nfor passporting are ultimately subject to interpretation by the European Court
\nof Justice (ECJ<\/em><\/strong>), which would also seem undesirable for the UK \u2013 and an
\nopen question legally once the UK is removed from the EU and EU legislation and
\nprimary and secondary EU court rulings and legislation cease to apply in
\nBritain. Although it is certainly possible that arrangements could be developed
\nthat protect UK sovereignty of rulemaking, supervision and adjudication in the
\nareas considered here whilst maintaining some form of passport, this would clearly
\nrequire significant deviations from the current EEA arrangements touted as a
\nstarting point for the solution, and, given the political difficulties of
\nachieving the concessions from both the UK and EEA member states required to
\nmake passporting work, it is doubtful whether satisfactory adjustments could
\never be achieved.[6]<\/a><\/p>\n
\nregulatory frameworks refers to the notion that, having given up its status as
\na Member State of the EU bloc, the UK would cease to be party to, and therefore
\nbenefit from, EU Treaty freedoms and principles of mutual cooperation and \u2018no
\ndiscrimination\u2019 on grounds of nationality between Member States. Moving
\nforward, the UK will in its dealings with the EU be forced to rely on the WTO
\nGeneral Agreement on Trade in Services (GATS<\/em><\/strong>) core principles of
\nnon-discrimination and equal treatment. Importantly, the specific protections
\nin EU financial services regulation against economic and political
\ndiscrimination on grounds of location or currency would fall away, leaving the
\nUK theoretically exposed to increased levels of risk in its dealings with the
\nEU market. As well as being outside any future negotiations on the design and
\noperation of EU financial regulatory frameworks, the UK will no longer enjoy
\nthe standing afforded to Member States to bring actions before the ECJ \u2013 a
\nstatus it has previously employed, for example, to block the European Central
\nBank (the ECB<\/em><\/strong>) from attempting to impose a mandatory geo-location policy
\nto require clearing houses that settle large amounts of euro denominated
\ntransactions to be based in the euro area. Indeed, there are already reports of
\nthe location issue being re-opened within the EU; it appears that the ECB may
\nnow make the case for an expanded jurisdiction (including over central
\nclearing) in order to for it to safeguard the euro-area financial
\ninfrastructure, and may even seek to withdraw from its liquidity swap line
\narrangements for clearing houses that were made with the Bank of England in
\norder to enhance financial stability in relation to central clearing within the
\nEU.[7]<\/a>\n<\/p>\n
\nis in this uncertain context that this paper will seek to explore the new phase
\nof economic diplomacy and regulatory engagement between the UK and the EU, and
\nto argue that a new, \u2018equivalence\u2019 based framework leveraging the \u2018third
\ncountry\u2019 rules is the best way forward for European engagement with British
\ninvolvement in European financial markets post-Brexit. Although it must be
\nnoted that a unified EU approach to the treatment of third countries around the
\nconcept of equivalence and with a fixed role for the various actors is not yet
\nin place, this paper will, through an assessment of the existing EU equivalence
\nrules in respect of key financial institutions, argue that Brexit has created a
\nunique opportunity to create a unified EU system of the treatment of third
\ncountries that will both provide for the UK\u2019s role in a post-Brexit Europe,
\nprovide certainty to existing financial markets stakeholders, and Help the
\nsingle market with functioning in an increasingly globalised international
\nmarketplace. <\/p>\nII HOW THE SAUSAGE GETS MADE: THIRD COUNTRY LAWS,
\n\u2018EQUIVALENCE\u2019, AND THE EXISTING EU FRAMEWORK<\/h2>\nA Equivalence,
\nexplained!<\/em><\/h3>\n
\nconstitutes one of the most important areas of economic activity in the UK. The
\nOffice for National Statistics estimates the financial sector output to be 8
\nper cent of the UK\u2019s national output,[8]<\/a>
\nwith some arguing that that if relevant business services are included, this
\nnumber can be as high as 11 per cent.[9]<\/a>
\nIn short, the UK has one of the largest financial systems in the world, with
\ncurrent market value of the financial assets owned by British financial
\ninstitutions standing at about \u00a320 trillion (over 10 times the UK\u2019s annual GDP).[10]<\/a>
\n13 Nearly a fifth of global banking activity is arranged or booked via the UK
\nand around half of the world\u2019s largest financial institutions, including banks,
\ninsurers, and asset managers, have their European headquarters based in London.[11]<\/a>
\nFour UK banks\u2014HSBC, Barclays, RBS and Standard Chartered\u2014have been designated
\nas Global Systemically Important Banks,[12]<\/a>
\nand more than half of the euro zone banks raise capital in London in the form
\nof either equity or debt , with the UK serving as a global hub for securities
\nand derivatives trading.[13]<\/a><\/p>\n
\nand as a member of the EU, the UK capitalised and developed the strength of its
\nfinancial markets through the freedom of movement of capital as well as freedom
\nof financial services throughout the EU provided for by EU legislation,[14]<\/a>
\nwith the free movement of capital guaranteed by the Treaty of Rome allowing UK
\nhouseholds and firms to borrow and invest abroad and make cross-border payments
\nwithout discrimination. The hard Brexit envisioned by the Article 50 Letter will
\nforce the loss of the rights to the freedom of movement of capital which has
\npromoted the growth of the British financial services industry. At this stage,
\nassessing the economic costs of losing these rights has proved difficult \u2013
\nalthough a quantitative study by Oliver Wyman indicates that nearly a quarter
\nof British revenues in banking and asset management, and nearly half of the
\nrevenues in market infrastructure and other areas, are related to the EU,[15]<\/a>
\nand that the low access scenario envisioned by the Article 50 Letter could
\nresult in total revenue loss of about \u00a318\u201320 billion. <\/p>\n
\nArticle 50 Letter means a loss of the TFEU rights, this is not the case in
\nrespect of the EU\u2019s equivalence provisions and their application to the UK. The
\nconcept of \u2018equivalence\u2019 in EU law relates to the legal and procedural mechanism
\nwhich manages third country (i.e., outside bloc) access to the EU capital
\nmarkets (access<\/em><\/strong>) and how EU market actors and counterparties interact
\nwith third country entities (export<\/em><\/strong>). [16]<\/a>
\nThe third country regime is distinguished from the interaction of member states
\nin a number of ways. Although it is geared towards \u2018outward looking\u2019 bloc
\ninteraction, it is operated by single market legislation and utilised the EU\u2019s
\nsupranational machinery, particularly the ECJ and ESA, as administrative
\nwatchdogs.[17]<\/a>
\nThe existing equivalence regime is rooted in complex historical, political, and
\ninstitutional legacy effects, in that it has been substantially shaped by the various
\nshifting political and economic interests in European financial services more
\ngenerally.[18]<\/a><\/p>\n
\ndifficult to understand why the third country regime for EU markets is, even in
\nthe post-GFC arena, \u2018partial, complex, and lacking in coherence\u2019,[19]<\/a>
\nwith some discrete market segments subject to no (or very limited) rules
\nrelating to third country access. \u00a0To add
\nto the general confusion \u2013 reciprocity (the mutual recognition of law) may or
\nnot be required for access, depending on the specific market, and registration
\nby the third country actor with ESAs, and submission to ESA authority, may or
\nnot be a condition of access.[20]<\/a>
\n\u00a0However, although the benchmarks against
\nwhich equivalence (whether in relation to access or export) are measured prior
\nto implementation vary between markets and nations, the \u2018procedural route to
\nthe pivotal equivalence determination is broadly similar\u2019.[21]<\/a>
\nThe EC is usually conferred with the power to initiate the equivalence process
\nand the EC\u2019s power to adopt an equivalence decision is almost always
\ndiscretionary. The EC makes the equivalence decision in the form of an \u2018administrative
\nact\u2019, usually under the \u2018examination procedure\u2019 for administrative rule-making,
\nderived from TFEU Article 291.[22]<\/a>
\n\u00a0However, it is important to note that in
\na limited number of cases TFEU Article 290\u2019s procedure for delegated acts is
\nrequired to be complied with (which is itself based on EC oversight via the
\nnon-objection procedure).[23]<\/a>
\nTechnical advice in respect of the relevant legislation is usually provided to
\nthe EC by ESAs (particularly ESMA \u2013 the European Securities and Markets
\nAuthority), which engages in an \u2018extensive assessment\u2019 of the relevant jurisdiction;
\nalthough this step is not always specified in the relevant legislation, as a matter
\nof practice the Commission seeks out and relies on ESMA\u2019s advice.[24]<\/a>\n<\/p>\n
\nequivalence decision ultimately made by the EC may be indefinite, time limited,
\nfull, or partial. It may include all the relevant financial governance elements
\nof the third country regime, or only elements. The equivalence process is not
\ntransparent and only indications as to how it operates in the capital markets
\nsector can be gleaned from Commission decisions on equivalence and from the
\nrelated technical advice from ESMA. \u00a0Clearly, this is a byzantine and enormously
\ncomplex area of EU legislation \u2013 the explanation for which being that it
\nreflects the necessarily bespoke \u2018tailoring\u2019 of legislation to fit specific
\nsituations.[25]<\/a>
\nThe benefit of this in respect of a post-Brexit UK integration is that the
\nmechanics of equivalence provisions can be adapted in order to provide for each
\naspect of the UK\u2019s financial services markets to be integrated into the existing
\nEU equivalence framework. However, to do so \u2013 as will be explored below \u2013 will
\nrequire significant work to \u2018streamline\u2019 and unify the existing
\n\u2018piece-by-piece\u2019 approach to equivalency determinations. <\/p>\nB Equivalence
\nin the context of the major UK \/ EU financial institutions<\/em><\/h3>\n
\nthe above review of the concept of \u2018equivalence\u2019 generally, it is relevant to
\nconsider how this is applied in the context of the key financial markets and
\nbodies that operate within the EU. This section will make detailed reference to
\nthe most important pieces of EU financial services regulation \u2013 the Capital Requirements Regulation (EU) <\/em>No.
\n575\/2013(the CRR<\/em><\/strong>), the Credit Institutions Directive <\/em>2013\/36\/EU(the CRD<\/em><\/strong>), the European Market Infrastructure Regulation<\/em>
\n(EMIR<\/em><\/strong>)
\nand the Markets in Financial Instruments
\nDirective<\/em> 2004\/39\/EC as subsequently amended (MiFID<\/em><\/strong>), under which the
\nequivalence frameworks of the institutions discussed in this section are
\ngoverned. With respect to MiFID, it is important to note that in April 2014,
\nthe European Parliament approved both MiFID II, an updated version of the
\noriginal MiFID law, and MiFID II\u2019s accompanying regulation, MiFIR. However,
\nthis new legislation does not enter into force until January 2018. Where
\nrelevant, this paper considers the implications of MiFID II and MiFIR, as
\nopposed to MiFID, as the occurrence of Brexit will fall after the revised
\nlegislation comes into place. <\/p>\n1. International Banking Groups<\/em><\/h4>\n
\ninstitutions (banks<\/em><\/strong>)are free to conduct their
\ncrossborder business in the Union by providing services or through branches or
\nsubsidiaries.[26]<\/a> Third
\ncountry banks (those incorporated outside of the EU), however, are positioned
\ndifferently. They are required to obtain permission to operate either as \u2018branches\u2019
\nor as \u2018subsidiaries\u2019.[27]<\/a>
\nThe power to grant this permission rests with EU member states \u2013 without the
\napproval, the third country banks cannot operate or provide financial services
\nwithin the EU. Member states may also set certain conditions on the operation
\nof the banks. Subject to the standard \u2018most favoured nation\u2019 safeguard provision
\nthat operative branches of third country banks must not be given \u2018more
\nfavourable\u2019 treatment than that accorded to branches of EU banks,[28]<\/a>
\nMember State authorities are required to make their own determinations as to whether
\nbranches or subsidiary is the appropriate form for an operating third country
\nbank. This decision is pivotal from a business perspective for the bank, as
\nwhilst operating as a branch is often a less costly option, when taking into
\naccount financial stability the establishment of an independently-capitalised
\nsubsidiary subject to local supervision (and resolution or bailout in the event
\nof failure) is advantageous (not to mention the \u2018soft\u2019 benefits of operating as
\n\u2018more than a branch\u2019 within a particular nation from a marketing perspective).[29]<\/a>
\nThere are no specific equivalence requirements or processes at the EU level applicable
\nto decisions regarding bank branching \u2013 and neither are such decisions subject
\nto \u2018harmonised\u2019 conditions.[30]<\/a><\/p>\n
\nequivalence tests do apply in certain other contexts applicable to
\ninternational banking groups and corporations. Equivalence can facilitate
\nstreamlined consolidated supervision of an EU-based bank that forms part of a
\nbroader international banking group headquartered in a third country; provided that
\nthe third country\u2019s regime for consolidated supervision is considered \u2018equivalent\u2019
\nto the relevant EU regime, the third country\u2019s consolidated supervision regime will
\nsuffice.[31]<\/a> If
\nequivalence is not found between the relevant third country and the EU\u2019s
\nconsolidated supervision rules, the EU consolidated supervision requirements or
\nother appropriate supervisory techniques which achieve the objectives of
\nsupervision on a consolidated basis will apply.[32]<\/a>
\nTo determine equivalence in respect of consolidated supervision, the competent
\nauthorities of the relevant Member State carries out the assessment of the
\nequivalence of the relevant third country\u2019s consolidated supervision
\nregulations with respect to subsidiaries of third country groups.[33]<\/a>
\nIn difficult cases, the EC may request the European Banking Commission (the EBC<\/em><\/strong>)
\nprovide general guidance as to whether the consolidated supervision
\narrangements in third countries are likely to achieve the objectives of consolidated
\nsupervision from an EU perspective. Competent authorities are required to take
\naccount of guidance from the European Banking Committee and are required to
\nconsult with the European Banking Authority (the EBA<\/em><\/strong>) before adopting a
\ndecision.[34]<\/a><\/p>\n
\nensure cooperation between supervisory bodies and individuals both within and
\noutside the \u2018colleges\u2019 of supervisors essential for the effective supervision
\nof an international bank group.[35]<\/a>
\nPrudential supervisors must be able to freely exchange information secure in
\nthe knowledge that confidentiality and sensitive information will be treated
\nwith appropriate professional secrecy. The conclusion of a \u2018cooperation
\nagreement\u2019 between EU banks and third country banks providing for an exchange
\nof information with third country authority is subject to (and conditional
\nupon) a guarantee that the third country\u2019s professional secrecy requirements
\nare at least equivalent to those in EU law.[36]<\/a>
\nIndeed, there must be equivalence with respect to confidentiality requirements generally
\nin order for any third country authority to be admitted to participation in a
\ncollege of supervisors including EU institutions.[37]<\/a>
\nThe CRD provides under article 116(6) that in order for any third country
\nauthority to participate in a college of supervisors, all of the competent
\nauthorities in the college must be of the opinion that the third country
\nconfidentiality requirements are equivalent to those applicable within the EU.[38]<\/a>The
\nresultant determination of equivalence does not involve the EC. The EBA has
\nissued a number of recommendations with respect to the equivalence of a number
\nof third country confidentiality regimes to inform the opinions of the relevant
\nnational competent authorities. These recommendations have been issued under
\nthe auspices of Article 16 of the EBA Regulation, and, as such, competent
\nauthorities must comply or explain their deviation from compliance with the
\nEBA\u2019s recommendation or regulation.[39]<\/a>\n<\/p>\n2. Cross-border investment
\nservices and firms<\/em><\/h4>\n
\ntime of writing, there is no cross-border passport available to third country
\nbased institutions who wish to be able to provide managed cross-border investment
\nservices to either retail or sophisticated investor clients. Although, as noted
\nin the introduction to this section MiFIDII has not yet come into force, this
\nsection will base its analysis on the implications of that legislation, rather
\nthan the extant MiFID, as Brexit will occur after implementation has occurred. <\/p>\n
\nin mind, the position under MiFIDII is that access is to be agreed on a
\n\u2018state-by-state\u2019 basis \u2013 with the caveat that all agreements must remain
\nsubject to the usual \u2018most favoured nations\u2019 safeguard that third country firms
\nmust not be treated more favourably than EU-based firms. EU Member States have
\nthe right to retain discretionary nationally-based exemptions in local
\nlegislation permitting third country investment firms that do not already have
\na branch in the relevant country to provide investment services without local
\nauthorisation.[42]<\/a> <\/p>\n
\nprovides for a generous exemption in favour of overseas persons under the Financial Services and Markets Act 2000
\n(Regulated Activities)<\/em>;[43]<\/a>
\nhowever, varying degrees of \u2018openness\u2019 prevail across Member States.[44]<\/a>
\nWhere, however, a Member State chooses to require a third country firm to
\nestablish a branch, under MiFIDII there is an authorisation process to which a
\nnumber of EU harmonized conditions apply.[45]<\/a>
\nAlthough these conditions are not as stringent as a full equivalence-based
\nexamination, they are required to cover a number of key areas, including:[46]<\/a><\/p>\n\n
\nprovision of services for which the firm requests authorisation in question being
\nsubject to authorisation and supervision in the third country;<\/li>\n
\nrequesting firm being properly authorised in the third country; <\/li>\n
\nregard being paid to relevant recommendations relating to anti-money-laundering
\nand terrorism financing; <\/li>\n
\nagreements are in place between the relevant Member State and third country
\nauthorities; <\/li>\n
\nbranch has sufficient initial capital at its disposal; <\/li>\n
\nare appointed to manage the branch in compliance with EU requirements with
\nrespect to management bodies; <\/li>\n
\nis an OECD Model compliant tax cooperation agreement in place between the
\nMember State and the third country; and <\/li>\n
\nfirm belongs to an authorised or recognised investor compensation regime. <\/li>\n<\/ol>\n
\nbranches are also required to, on an ongoing basis, comply with these and certain
\nother MiFIDII obligations and remain subject to the supervision of the Member
\nState\u2019s competent authorities \u2013 however, the relevant Member State may not
\nplace additional restrictions or requirements on the organisation and operation
\nof the branch in respect of the matters already covered by MiFIDII. <\/p>\n
\nrelevant to consider is that, under MiFIR, third country firms will be able to
\nprovide investment services and perform investment activities with both eligible
\ncounterparties and with professional clients in the single market context without
\nthe establishment of a branch where it has been registered in the register of
\nthird country firms kept by the European Securities and Markets Authority (ESMA<\/em><\/strong>).[47]<\/a>
\nAlthough ESMA has the ability to withdraw registration where it has a \u2018well founded\u2019
\nreason to do so, it does not play a supervisory role once a third country firm
\nhas been registered in a Member State.[48]<\/a>
\n\u00a0ESMA registration is subject to three
\nconditions:[49]<\/a><\/p>\n\n
\nthe introduction of MiFIDII and MiFIR, EU Member States will not be permitted
\nto allow that third country\u2019s firms to provide investment services or
\nactivities to eligible counterparties and professional in accordance with
\nnational regimes.[50]<\/a>
\nEquivalence decisions made by the EC on these points will be required to state
\nthat the \u2018legal and supervisory arrangements of the third country\u2019 ensure that
\nfirms authorised in that third country comply with legally binding prudential
\nand business conduct requirements which have equivalent effect to the
\nrequirements set out in MiFIR, MiFIDII, CRD and associated delegated and
\nimplementing measures,[51]<\/a>
\nas well as providing a confirmation of reciprocity of treatment for EU firms
\nunder the relevant third country\u2019s applicable legal or legislative regime. The relevant
\nthird country\u2019s legal and regulatory framework must also operate to ensure both
\nmarket transparency and market integrity by preventing abuse via the
\nprohibition of insider dealing and market manipulation. The EC\u2019s ultimate decision
\non equivalence is subject to oversight by the European Securities Committee,
\nand ESMA as a source of technical advice.[52]<\/a>\n<\/p>\n3. Credit Rating Agencies<\/em><\/h4>\n
\ncredit ratings agencies has been an area of global legislative and regulatory
\nfocus. Under EU law, the use of ratings issued by third country rating agencies
\nfor regulatory purposes relevant to the EU is restricted,[53]<\/a>
\nand can only be used under either the \u2018endorsement\u2019 regime or the \u2018certification\u2019
\nregime. Endorsement allows ratings agencies registered with ESMA (which, it
\nshould be noted, is the single supervisor for rating agencies operating within the
\nEU) to \u2018endorse\u2019, for EU regulatory purposes, a rating which has been issued by
\nthe third country agency (e.g., an individual product rating for a creditworthy
\nasset). The endorsement process is subject to a number of conditions, including
\nthat the EU credit rating agency has verified and is able to demonstrate on an
\nongoing basis to ESMA that the conduct of credit rating activities by its
\nassociated third-country credit rating agency fulfils requirements which are at
\nleast \u201cas stringent as\u201d requirements applicable to EU credit rating agencies,
\nand that it is subject to effective supervision.[54]<\/a>
\nThe \u201cas stringent\u201d standard is generally considered to be similar to the
\nrequired standard for equivalence, and must be referred to in concert with the third
\ncountry measures that are legally binding.[55]<\/a>
\nJurisdictions that have passed the ESMA \u201cas stringent\u201d test include most of the
\nworld\u2019s largest financial markets, including the United States, Australia,
\nJapan, Canada, Singapore and Hong Kong.[56]<\/a><\/p>\n
\non the other hand, is only available to third country credit rating agencies
\nthat have no presence or affiliation in the EU (provided they are not considered
\nto be systemically important for the financial stability or integrity of the
\nfinancial markets of one or more Member States). Certification is subject to a
\ndetermination of third country equivalence by the EC, overseen and advised upon
\nby the ESC. To be considered equivalent, it is required the relevant third
\ncountry based ratings agency is subject to the following requirements:[57]<\/a><\/p>\n\n
\nor registration; <\/li>\n
\nsupervision and enforcement on an ongoing basis; and<\/li>\n
\nthe EU requirements for rating agencies (subject to certain exceptions and exemptions).<\/li>\n<\/ol>\n4. Benchmarking<\/em><\/h4>\n
\nfocus on the regulation of ratings agencies following the GFC, the regulation
\nof benchmarking has seen much attention in the post-crisis landscape in the
\nwake of widespread benchmark manipulation scandals. In this context,
\n\u2018benchmarking\u2019 refers to the financial industry practice of formulating a
\nstandard against which the performance of a security, mutual fund, financial
\nproduct, or other managed investment can be measured. The EU benchmark
\nregulatory regime is managed under Regulation (EU) 2016\/1011 amending
\nDirectives 2008\/48\/EC and 2014\/17\/EU and Regulation (EU) No 596\/2014 (the EU
\nBenchmark Regulations<\/em><\/strong>).[58]<\/a>
\nThe EU Benchmark Regulations bear many similarities to the treatment of credit
\nratings agencies from an equivalence perspective, as discussed in section 3
\nabove. <\/p>\n
\nBenchmark Regulations, benchmarks produced by non EU administrators (that is,
\nthose based in third countries) can only be used in an EU prudential or
\nregulatory context where the relevant administrator has either been \u2018authorised\u2019
\nor \u2018registered\u2019 under an approved equivalent third country regime, or where the
\nbenchmark is endorsed by an EU administrator.[59]<\/a>
\nEquivalence determinations made by the EC must relate to binding requirements
\nin the relevant third country that correspond to the applicable requirements of
\nthe EU Benchmark Regulation (taking account whether the applicable legal
\nframework and supervisory practice of the relevant third country ensure
\ncompliance with relevant International Organisation of Securities Commissions (IOSCO<\/em><\/strong>)
\nprinciples).[60]<\/a>
\nAs with credit rating agencies equivalency determinations, effective on-going
\nregulation and supervision must also be in place. \u00a0Implementation decisions (overseen by the ESC),
\nmay relate to all of a third country\u2019s administrators or may be confined to
\nspecific administrators, or specific benchmarks or families of benchmarks, with
\nESMA available to provide technical Helpance and guidance in the process of
\nthis determination.[61]<\/a>
\nIn addition to this consultative role, ESMA also holds responsibility for
\nestablishing any required cooperation arrangements with the relevant third
\ncountry supervisor.[62]<\/a><\/p>\n
\nallows EU authorised or registered administrators to apply to a Member State
\nauthority to endorse a third country benchmark or family of benchmarks for EU
\nregulatory use. One of the core conditions to endorsement is that the benchmark
\nfulfils requirements that are \u201cat least as stringent\u201d as the EU
\nrequirements on benchmarking.[63]<\/a>
\nInterestingly, in a departure from the equivalent position in relation to the
\nendorsement system used in respect of rating agencies, for the purposes of the
\n\u201cas stringent\u201d test self-regulatory, as well as mandatory, requirements count. <\/p>\n5. Clearing Houses and other forms
\nof market infrastructure providers<\/em><\/h4>\n
\n\u2018market infrastructure providers\u2019 \u2013 that is, entities which operate services on
\nwhich financial instruments are created and traded (including central clearing
\nhouses and trading platforms) will also be subject to equivalence rulings
\nfollowing a hard Brexit. <\/p>\n
\nBrexit scenario considered by this paper the most likely outcome of the Article
\n50 Letter, all UK market infrastructure providers will lose status as a
\n\u2018regulated market\u2019 for the purposes associated with the admission of securities
\nto listing in the EUI, and with it, the associated entitlements enjoyed under
\nEU law (including most-favoured trading conditions and freedom from price
\ndiscrimination).[64]<\/a> <\/p>\n
\nand most relevantly in the case of central clearing houses, important EU legal
\nprotections with respect to the operation of payment systems and settlement
\nfinality will no longer apply (although this loss is likely to be mitigated by the
\nequivalence-based provisions in MiFIR which provide for third country
\ninfrastructure providers to be eligible as trading and\/or clearing venues for
\nmandatory EU trading\/settlement obligations). MiFIR and EMIR will also provide
\nfor third country market infrastructure providers the ability to access on a
\nnon-discriminatory basis EU trading venues and clearing houses.[65]<\/a><\/p>\n
\nother equivalence regimes explored in this section of this paper, ESMA plays a
\ncentral role in consulting and overseeing the equivalence process in respect of
\nmarket infrastructure providers. ESMA is directly responsible for recognising
\ncentral counterparties established in third countries to allow them to provide
\nclearing services within the Union.[66]<\/a>
\nThis recognition allows clearing counterparties that are subject to EMIR
\nclearing obligations to use relevant third country clearing counterparties for
\nthat purpose \u2013 provided they are cleared through an equivalence determination.[67]<\/a>
\nDetermination rulings in this context are made in the form of implementing acts
\noverseen by the ESC, who are required to assess that:[68]<\/a><\/p>\n\n
\napplicable legal and supervisory arrangements of the relevant third country
\nensure that central clearing counterparties are in compliance with legally
\nbinding requirements which are equivalent to the requirements of EMIR;<\/li>\n
\nCCPs are subject to effective supervision and enforcement in that third country
\non an ongoing basis; and<\/li>\n
\nlegal framework of that third country provides for an effective equivalent
\nsystem for the recognition of CCPs authorised under third-country legal
\nregimes.<\/li>\n<\/ol>\n
\nbe satisfied that the central clearing counterparty is established or
\nauthorised in a third country that is considered to have equivalent systems in
\nplace with respect to anti-money-laundering and counter-terrorism regulation.[69]<\/a><\/p>\nIII THE CASE FOR A UNIFIED POST-BREXIT
\nEQUIVALENCE FRAMEWORK<\/h2>\n
\nII of this paper, the EU\u2019s current approach to legislating equivalence
\nprovisions is at best complicated and at worst byzantine \u2013 but it does work,
\nand it is in use across each of the five major financial institutions which
\nform the core of the UK\u2019s role as a centre of global finance. However, as it
\nstands, to attempt to manoeuvre the entirety of the British financial market
\nthrough the competing equivalency requirements would present a difficult task
\nto meet the project ( help with nursing paper writing from experts with MSN & DNP degrees)ed timeline of Brexit. This paper would suggest that Brexit presents
\na unique opportunity to hasten the progression towards a more unified system
\nfor the treatment of third countries across the different EU equivalency
\nframeworks.<\/p>\n
\nappetite for change in how the EU treats the equivalency framework is apparent within
\nthe EC, with the publication of the wide-ranging November 2016 reform agenda (recently
\nadopted by the EC), which has sought to respond to stated concerns on the
\ncrisis era reforms.[70]<\/a>
\nAs noted by Moloney,[71]<\/a>
\na \u2018driving concern\u2019 of these reforms is to remove the \u2018incoherence and
\ninconsistencies across the single rulebook\u2019 explored in Section II of this
\npaper. As shown in Section II of this paper, and noted by several academics,[72]<\/a>
\nthe equivalence regime being subject to a range of different procedures and
\nconditions depending on the measure and institution being dealt with creates
\nnot only a significant administrative burden on both third countries and
\nregulators, but also a significant risk of a disruption to the EU capital
\nmarket arising from defects in how the current third country rules apply. Adopting
\na stable and consistent equivalence process across all financial markets and
\ninstitutions would put third country access to the EU capital market on secure
\nfooting, with increased market stability and efficiency \u2013 particularly given
\nthe ability to ensure a \u2018smooth\u2019 post-Brexit transition for the EU\u2019s interaction
\nwith the UK as a core financial market. <\/p>\n
\nconsider the socio-political agendas which would also support the adoption of a
\nrevised equivalency framework. As widely noted in the financial press
\npost-crisis, with the exception of Germany the EU economy has continued to
\nstruggle, and the much-discussed flagship capital markets union project ( help with nursing paper writing from experts with MSN & DNP degrees) designed
\nto Help with Member State growth requires the facilitation of access to both the
\nbroader global corporate sector and to a broader base of investors and
\ninvestment opportunities in order to support growth of jobs and economic output.[73]<\/a> This
\naim is unlikely to be furthered where the UK (not to mention other third
\ncountry) finance and investments are excluded. The EU\u2019s desire to maintain an
\ninternationally open financial market does have a strong basis in
\nself-interest, and can expected to remain a key component of any post-Brexit
\nreformation. Taking a protectionist approach to market reformation would also cut
\nacross the EU\u2019s stated financial services agenda at the international level \u2013
\nfor example, the EU commitment to the G20 agenda around freedom of trade, and
\nto its stated goal of playing a central role in worldwide financial markets and
\nworking cooperatively with other countries to find mutually supportive
\nregulatory solutions which facilitate international business.[74]<\/a><\/p>\n
\narrangements that currently govern third country access to the EU. Its holds a
\nclear interest in maintaining (or strengthening) the position of London as an
\ninternational financial centre which is \u2018open for business\u2019. The overwhelming
\ncomplexity of the EU\u2019s current \u2018case-by-case\u2019 approach to the equivalency
\nframework stands as a significant impediment to this goal as the UK begins its
\nown transition into third country status \u2013 and one which could come at a
\nsignificant financial cost to both the UK and the EU. Since not all critical financial
\nservices and activities are currently covered by an existing equivalency
\nframework in favour of third, to continue some activities (not to mention
\nimplementing new or significantly evolved financial products) UK institutions with
\nsubstantial EU interests will be forced to absorb the costs of navigating individual
\n(and highly variable) exemptions under the national laws of the Member States
\nin which they wish to operate, or face being forced to restructure their group
\nstructures to establish an EU-based entity that comes under the umbrella of existing
\nEU frameworks. <\/p>\nIV CONCLUSION<\/h2>\n
\nlike is an open one \u2013 but one to which this paper would suggest there is a
\nclear response. Given the EC\u2019s stated ambitions, it is
\nreasonable to assume that any new regime be located in a horizontally
\napplicable (i.e., applying across all Member States equally) single market
\nmeasure with a procedural orientation which would address how equivalence is
\nassessed generally, rather than in respect of individual financial institutions
\nand markets, and irrespective of whether the determination is being made for
\nmarket access or rule export.[75]<\/a> \u00a0While other new models managed
\nby EU\/third country tribunals or committees\u00a0
\nfocused on the oversight of specific markets and with the capacity to
\nmake considered yet commercial decisions could be envisaged, it is difficult to
\nimagine a situation in which the EU would willingly concede the removal of an
\nEU-based supranational body as an ultimate arbiter of one of the EU\u2019s
\nregulatory frameworks \u2013 particularly one as vital as a post-Brexit equivalency
\nsystem. [76]<\/a>
\nBrexit may represent the requisite \u2018push\u2019 to move the EC towards reforming a
\nsystem which, in the fragmented and globalised contemporary economy, no longer
\nmakes sense from a practical or an administrative perspective. <\/p>\n
\nthe question of whether or not \u2018Brexit means Brexit\u2019 in the context of
\nfinancial markets may not be answered in the short term, the EU, together with
\nthe UK, clearly stand on the precipice of an important moment in their shared
\nhistory. Given their importance as the most practical solution to a post-Brexit
\n\u2018third country\u2019 hard Brexit scenario envisioned by this paper, the equivalency
\nframework is likely to be a location of contestation given the distinct
\npreferences and interests which the confluence of Brexit and the EU\u2019s own
\nsocio-political agenda are likely to generate. However, as this paper has
\nargued, a two-way equivalence based arrangement for cross-border access to
\nfinancial markets represents the most stable transitional arrangement for European
\nfinance in a post-Brexit market. <\/p>\nV BIBLIOGRAPHY<\/h2>\n
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\nof Commons Library, SN\/EP\/06193, 26 February 2015), p.1, <\/p>\n
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\nFinancial Services\u201d (December 2016), p.5, <\/p>\n
\n\u201cKey Facts about UK Financial and Related Professional Services\u201d (March 2016),
\np.9<\/p>\n
\nFinancial Stability Board, \u201c2016 list of
\nglobal systemically important banks (G-SIBs)\u201d (November 2016), p.3<\/p>\n
\nIMF, \u201cUnited Kingdom\u2014Financial Sector
\nAssessment Program\u201d (June 2016), p.9.<\/p>\n
\nTreaty of Rome, 25 March 1957, Title I, Free
\nMovement of Goods and Title III, Free Movement of Persons, Services and
\nCapital.<\/p>\n
\nWyman, \u201cThe Impact of the UK\u2019s Exit from the
\nEU on the UK-Based Financial Services Sector\u201d (2016), p.6,<\/p>\n
\nN Moloney, \u2018Brexit, the EU and its Investment Banker: Rethinking Equivalence
\nfor the EU Capital Market\u2019 (2017) LSE
\nLaw, Society and Economy Working Papers 5\/2017. \u00a0<\/p>\n
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\nA D\u00fcr, \u2018Fortress Europe or Open Door Europe?
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\n13.<\/p>\n
\nSet out in Regulation (EU) No 182\/2011 [2011]
\nOJ L55\/13.<\/p>\n
\nas benchmark (A8-0131\/2015) (Rapporteur: Cora van Nieuwenhuizen) 75.<\/p>\n
\nor Branches: Does One Size Fit All?<\/em> (IMF Discussion Note No. SDN\/11\/04).<\/p>\n
\n132(3) and 142(2).<\/p>\n
\nMarkets Act 2000 (Regulated Activities) <\/em>Order 2001, art 72.<\/p>\n
\nPost-Crisis Financial Services Regulation in the European Union\u2019 (2015) 38 West European Politics<\/em> 16<\/p>\n