UK-EU Memorandum of Understanding on Financial Services Cooperation

Nicola Sharp of Rahman Ravelli outlines the UK and European Union’s attempt to ensure stability in the financial services sector.

The UK has reached broad agreement with the European Union (EU) regarding regulation of financial services.

A Memorandum of Understanding (MoU) has been drafted to establish a framework for financial services regulatory cooperation between the two parties.

The Joint Declaration on Financial Services Regulatory Cooperation between the EU and UK of 24 December 2020 included a commitment to have a MoU in place by March 2021. But the conclusion of it was delayed. However, the European Commission and the UK government have now undertaken to jointly pursue “a robust and ambitious bilateral regulatory cooperation in the area of financial services’’ in order to preserve financial stability, market integrity and protect investors and consumers. This pursuit is based on a set of arrangements.

These agreed arrangements will provide for:

• Bilateral exchanges of views and analysis relating to regulatory developments and other issues of common interest.
• Transparency and appropriate dialogue in the process of adoption, suspension and withdrawal of equivalence decisions.
• Bilateral exchanges of views and analysis relating to market developments and financial stability issues.
• Enhanced cooperation and coordination - including in international bodies - as appropriate.
  
  

Joint UK-EU Regulatory Forum

A significant feature of the MoU is its creation of a Joint UK-EU Financial Regulatory Forum (the Forum) for “structured regulatory cooperation’’ on financial services regulatory issues. The Forum’s meetings be held alternately in the EU and the UK, at least every six months.

The Forum will be used as a means of ensuring that there is forward planning of regulatory cooperation to share knowledge, reduce uncertainty, enhance transparency, identify cross-border implementation issues (including concerns linked to potential regulatory arbitrage by firms), consider working towards compatibility of each other’s standards and, when relevant, promote domestic implementation consistent with international standards.

But Forum cooperation and discussion should not restrict either jurisdiction when it comes to implementing regulatory, supervisory or other legal measures that it considers appropriate.

The MoU states that the Forum may be used to:

• Promote timely domestic implementation of international regulatory standards in the financial services sector.
• Share information on regulatory developments to allow for identification of potential cross-border implementation issues.
• Exchange views on the respective policies, rules and processes concerning deference regimes, such as equivalence, or other tools used to address cross-border issues.
• Discuss autonomous decisions to adopt, suspend or withdraw equivalence relevant to one or the other side.
• Discuss macro-prudential developments and financial stability risks.
• Exchange views on regulatory issues, in a bilateral context, paying due respect to the regulatory interests of supervisory and resolution authorities and incorporating the views of EU and UK supervisory and resolution authorities.
• Keep each other informed about efforts to prevent and combat money laundering and terrorist financing that relate to the financial services sector.
• Discuss cooperation in multilateral contexts as appropriate and relevant in specific areas and, where possible, share positions on agenda items prior to key G20 or other international meetings.
• Share information about the effectiveness of supervision and enforcement of rules for implementing internationally agreed standards.

While the MoU is seen by both sides as a shared commitment to work together, it does not address the issue of UK-based firms’ access to the EU Single Market or EU firms’ access to the UK market. The MoU does not create rights or obligations under international or domestic law, and there will be no financial obligations resulting from its implementation.

The Forum can start its activities as soon as the MoU is signed by both parties.