In the meantime, some EU member states are already starting to flex their regulatory muscle.
The financial regulator in France, the ACPR, has written to remind UK financial institutions they need to provide their customers with personalised information on how their service will continue – or cease – to be provided in France after January 1, 2021.
And the Dutch have backed up ESMA’s statement on reverse solicitation, confirming it is not permitted for third country financial services firms in respect of Dutch retail customers.
Memoranda of understanding
In January 2021, the EU and UK confirmed they would try and agree by the end of March 2021 a Memorandum of Understanding, to set a framework for ‘structured regulatory cooperation’.
The UK it seems would prefer a more bespoke, all-encompassing arrangement – a form of ‘enhanced equivalence’ sweeping across the majority of financial services.
However, it would also prefer something that allowed it flexibility in its negotiations with other nation states and the ability to diverge where it felt necessary.
The EU, which was always fearful of the UK cherry-picking the best bits in the main deal without paying the price for leaving the EU, remains wary of detracting from a strict adherence to the existing basis of equivalence.
Reflecting this position, Valdis Dombrovskis, an EC executive vice-president, stated the EU’s equivalence assessment of the UK’s regulatory environment ‘will have to be forward-looking’ and would need to take into account ‘overall developments, including any divergences of UK rules from EU rules’.
A bespoke agreement providing for a wider equivalence regime between the UK and EU has already been rejected by the EU.
The EU plans to take greater care when assessing the equivalence of ‘high-impact’ third countries, i.e. countries for which a grant of equivalence will likely be used on a wider scale. It is likely the UK would be categorised as a high-impact country.
In November 2019, the EU made legislative changes to narrow the Mifid II third country regime. This goes live in June 2021, and perhaps would be the route some UK investment managers feel is their best option for accessing clients in the EU.
But terms like ‘detailed and granular assessment’ when assessing equivalence do not bode well, and this promises to be particularly onerous in its application.
In short, the EU is making the equivalence regime more difficult for third countries to satisfy, as well as seeming to keep a very close eye on any divergences from EU rules.
UK firms which have retained EU-based clients, even if by accident, should also review the terms of their professional indemnity insurance.
