Back to Brexit – House of Lords EU Financial Affairs Committee recommendations on financial services after Brexit
The House of Lords EU Financial Affairs Committee has published recommendations on the financial services industry post-Brexit. The Committee recognised that this may not be a government priority due to COVID19, but EU negotiations and the future of the UK's financial services industry will be important issues in future months.
On 27 March 2020, the House of Lord EU Financial Affairs Committee published an open letter to Rishi Sunak, Chancellor of the Exchequer, setting out its recommendations regarding the financial services industry in a post-Brexit world.
The Committee presented six key conclusions and recommendations that may be broadly summarised under three headings: (i) the equivalence regime; (ii) approaches to regulation; and (iii) international cooperation in the financial services industry.
It was agreed in the Political Declaration that the future UK-EU relationship in financial services will be based on equivalence. Equivalence is a unilateral mechanism whereby trading partner A recognises partner B's trading standards and enforcement as equivalent to their own. This is already widely used between the EU and third countries, such as Japan, the USA and Canada. The Committee emphasised that the UK government should closely cooperate with the financial services industry to highlight the areas where equivalence is most important to UK financial services and prioritise these discussions with the EU.
The Committee warned that discussions around disruption to financial services should be addressed separately from broader negotiations on the UK-EU relationship so as to avoid these discussions becoming politicised.
There is a further concern that businesses may not be able to rely on equivalence for their cross-border activities if equivalence decisions can be withdrawn at short notice. Instead, the committee recommend that there should be a regular and structured regulatory dialogue and a phased approach to any withdrawal from equivalence decisions with clear timelines and consultation with the industry.
Approach to UK regulation
Brexit provides an opportunity for the UK to take a new approach to financial regulation by delegating more powers to its regulators. The regulatory regime may benefit from increased flexibility and the ability to respond to market changes with technical expertise.
The Committee emphasised that effective scrutiny of regulators should be maintained. In response to any increased delegation of powers, there will need to be an increase in parliamentary oversight of regulators' activities.
The Committee recommended that, as UK and EU regulations start to diverge, the UK should tailor its regulatory regime to the UK context. This may be done through targeted adjustments to the regulatory regime, in particular through considerations of UK divergence from the EU in its implementation of the final Basel III standards and of other international standards.
Post-Brexit, the UK has an opportunity to lead international cooperation in the financial services industry. The Committee recommends that such cooperation should include multilateral discussions in order to develop common global regulatory standards and to build close relations with jurisdictions sharing a common approach.