EUROZONE, FINANCE AND ECONOMY POLITEIA

EU-UK FINANCIAL SERVICES AFTER BREXIT ENHANCED EQUIVALENCE - A WIN-WIN PROPOSITION

BARNABAS REYNOLDS

www.europeanreform.org @europeanreform Established by Margaret Thatcher, New Direction is Europe’s leading free market political foundation & publisher with offices in Brussels, London, Rome & Warsaw.

New Direction is registered in Belgium as a not-for-profit organisation and is partly funded by the European Parliament. REGISTERED OFFICE: Rue du Trône, 4, 1000 Brussels, Belgium. EXECUTIVE DIRECTOR: Naweed Khan. www.europeanreform.org @europeanreform The European Parliament and New Direction assume no responsibility for the opinions expressed in this publication. Sole liability rests with the author. AUTHOR TABLE OF CONTENTS

1 SUMMARY 7

2 THE CASE FOR UK-EU COLLABORATION 8

3 RETHINKING THE WAY TO COLLABORATE 9

4 THE PATH FORWARD: BINDING MUTUAL ACCESS 11

5 THE CONCEPT OF EQUIVALENCE 12

Barnabas Reynolds 6 BRANCH ACCESS 14

7 SHARED SOVEREIGNTY AND JOINT SUPERVISION 14 Barnabas Reynolds is a partner at Shearman & mon Brexit Benefits’, inHow to Leave the EU: What’s Sterling LLP where he is head of the global finan- Best for Britain, Best for the EU? (New Direction 8 ENHANCED EQUIVALENCE 15 cial institutions and financial advisory practice. He and Politeia, 2017). After graduating in law from 9 NEXT STEPS: IMPLEMENTATION 19 practises in UK and EU financial regulation and ad- Downing College, Cambridge he took an LLM at vises all types of financial markets participants on Queens’ College, Cambridge and now lives in Lon- 10 CONCLUSION 21 their legal and regulatory situations, difficulties and don. Reynolds co-edits Sweet & Maxwell’s Journal opportunities and their legal risk profiles. He has of International Banking Law and Regulation and is Appendix A DRAFT EQUIVALENCE REGULATION 22 written three studies for Politeia on the future ar- the co-author of Shipowners’ Limitation of Liability, Appendix B DRAFT UK IMPLEMENTATION OF THE EQUIVALENCE REGULATION 86 rangements for financial services trade after Brexit, Kluwer Law, 2012. He writes regularly on financial the most recent of which is The Art of the No Deal: services matters, including recently on client mon- Appendix C DRAFT EU-UK BILATERAL AGREEMENT 120 How Best to Navigate Brexit for Financial Services ey and assets, MiFID II, shadow banking, margin for (Politeia, November 2017). He wrote ‘The UK, Global uncleared swaps, derivatives clearing and senior Financial Services and the EU – Next Steps for Com- management liability.

New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

1

SUMMARY

or financial services, it is possible for the UK and the UK would bring with it disruption, inefficiencies EU to have a close, collaborative relationship and friction costs that would be borne by EU F after Brexit which reflects the long history of customers and counterparties to no particular benefit partnership between the UK and the constituent EU to the EU, its economy or its citizens. member states. It is in fact possible for the relatively recent achievements of the EU’s passporting regime This analysis shows how such a collaborative to be continued with the UK, in another form, after relationship for financial services can be Brexit, to allow EU customers to have the most constructed. It contains a draft EU regulation cost effective access to the global financial centre (Appendix A), draft UK implementing measures located in the European timezones and to enable (Appendix B) and sections of a draft UK-EU pan-European financial flows to continue unhindered. agreement (Appendix C) that would effect a The EU would have a valuable role in helping to mutually beneficial arrangement, to establish shape financial regulation in a global context and predictable reciprocal access between financial in facilitating financial flows in and out of the EU. services firms and their customers and Reverting to a pure third country arrangement with counterparties after Brexit.

6 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 7 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

2 3

THE CASE FOR UK-EU RETHINKING THE WAY COLLABORATION TO COLLABORATE

rom the EU’s perspective, it is not possible for back on any deal with the UK in order to discourage the UK to continue to make use of the financial other member states from leaving the EU will be self- F services passports without membership of the harming. The EU needs to have the self-confidence EEA. Given that the UK government has signalled to survive on its own merits, on the basis that being that it does not intend to remain part of the EEA, it a member of the EU is worthwhile and attractive in necessarily follows that the UK will not be able to and of itself. Holding the EU back commercially and make use of the financial services passports after financially to make a political point will weaken the Brexit. Suggestions to the contrary are mischievous. authority of the EU both externally and internally. In The UK wishes to repatriate sovereignty. This means addition, if opening itself up to global trade is seen the UK will not, after Brexit, apply the single EU to risk the EU’s very existence, it is hard to see how regulatory rulebook as it evolves. Autonomy for the the EU can ever achieve its full potential or even UK means that it will not be subject to the jurisdiction succeed in the longer term. The bona fide objectives of the three European Supervisory Authorities (ESAs) of the EU federalists are largely structural. They - the European Securities and Markets Authority seek the solidity of a new unified entity. They do not (ESMA), the European Banking Authority (EBA) and seek to close the EU off from global trade, let alone the European Insurance and Occupational Pensions from global financial flows. In fact, it is enshrined Authority (EIOPA). It also means the UK will not in EU Treaties that the Commission shall be guided participate in EU financial services lawmaking. In fact by the need to promote trade between Member the UK will not have political involvement in the EU’s States and third countries.2 Mario Draghi, President ow that Brexit negotiations have moved The UK has a large trade deficit with the EU on institutions, whether that be the European Council, of the European Central Bank (ECB) has stated that from the procedural first phase to the more goods, so a deal for goods is unequivocally in the European Parliament or the European Court of ‘international trade results in a more efficient use substantive second phase, it has become EU’s interests. For financial services, the costs N Justice. The UK will to that extent be a third country. of production factors and in specialisation where clear that both the EU and the UK are looking to work to EU customers, consumers and counterparties It can cooperate with the EU in new ways but any comparative advantage exists, thereby raising towards some kind of deal to ensure that goods and of not having straightforward, direct and cost- relationship of collaboration and cooperation needs to productivity growth.’3 services in general can flow without unnecessary effective access to the UK’s global financial recognise these foundational facts. barriers across Europe. services markets and providers are equally clear. Against this backdrop, two points must be addressed. Research has indicated a range of possible figures Political sentiments have been expressed in some This is not surprising. Notwithstanding the rhetoric for the cost to the City of London of a lack of a quarters in the EU about punishing the UK for Brexit. The first is that the UK and the EU have always on both sides, it has always been clear that it is in mutual access arrangement with the EU, none of The UK will be unable to accept this, not least given sat somewhat uneasily together in the financial the interests of both parties to ensure that as much which is attractive.1 The reverse of this proposition the role of its Parliament. It is already clear the UK will services sector. The more federalist instincts of the as possible of the current set-up can continue. It is also true. EU customers, consumers and not sign up to some form of Treaty of Versailles, with EU have often been resisted by the UK. The EU’s has been apparent from the beginning that such an counterparties will bear significantly increased punitive payment obligations and negative trading single rulebook is ill-suited to the hugely divergent outcome is likely to include a mutual access deal to costs arising from the disruption and business arrangements. The alternative of no deal is less regulatory requirements of the City of London, enable the continued provision of financial services – fragmentation that will inevitably arise without a attractive (and is not the UK’s preferred option) but which houses global wholesale markets requiring and indeed services generally – between the EU and robust mutual access arrangement for financial it is not punitive and would permit the UK to succeed heavily judgement-based regulation in order to be UK after Brexit. services. in other ways. Furthermore, efforts to try to pare supervised safely. The prescription of EU rulemaking

1 See, for example, the report produced by Oliver Wyman, ‘The impact of the UK’s exit from the EU on the UK-based financial services sector’. This estimates that in a scenario where the UK becomes a third country with little or no access to the EU, approximately £18-20bn of EU-related activity would be lost with 31,000-35,000 jobs at risk. See also the report produced by PricewaterhouseCoopers, ‘Leaving the EU: Implications for the UK financial services sector’. This 2 See Article 32, Treaty on the Functioning of the European Union (TFEU). report estimates a reduction of 70,000-100,000 of those employed in the UK financial services sector and a decline of 5.7%-9.5% in the gross value added of the UK financial services sector. 3 In his speech at the Economic Policy Symposium of the Federal Reserve Bank of Kansas City, Jackson Hole, 25 August 2017.

8 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 9 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds has certainly helped to establish the single market in politics and looking purely at the financial side of financial services and to break down barriers between things, EU financial institutions and clients need 4 many of its member states, but those rules are overly continued access to the deep pools of liquidity and prescriptive for the dynamic and fast-evolving global services that are only available from the City within markets in the UK. These markets require fewer rules the EU’s own timezones. The provision of financial and more hands-on supervision. This needs to be services requires human interaction on a real- unfettered by process and bureaucracy so that it can time basis, particularly for larger-scale financings THE PATH FORWARD: be responsive to market needs. Such responsiveness and dealings. For that the humans in question is also key to avoiding the dangerous build-up of need to be awake and operating efficiently and in BINDING MUTUAL ACCESS systemic risk in the global markets in the UK, to the the requisite numbers within normal EU working detriment of those markets, the EU and the UK. hours. Seeking out capital from elsewhere in the world will be extremely restricting given the time Conversely, the UK’s more free market instincts differences. This is not just true for the wholesale have often ruffled feathers in the 27 other member markets. EU consumers will benefit from services states, which are not so entwined with the global and products incubated locally in the UK, with real- financial markets. The UK’s resistance to a single time, interactive human support. These services and financial services regulatory rulebook and federal products will generally be spin-offs from the global EU supervision has impeded the full development of wholesale markets located in the UK, where the those ideals from the EU’s perspective. Moreover, the sophistication of those markets and their providers needs of the eurozone are increasingly at the heart leads to greater diversification and more cost- of EU regulatory rulemaking. Given the UK has never effective pricing for consumers. been part of the eurozone, its needs are very different. Regulations made to protect the euro project are EU financial institutions need access to the UK’s increasingly difficult to apply in the UK. Many lead counterparty and client base, in both a wholesale and to the displacement of eurozone risk into the global retail context. It is also advantageous to the EU (and financial markets in a manner which will not be UK) for UK financial institutions, and the large number accepted by those markets, instead pushing business of global financial institutions which choose to carry hat is needed, therefore, is a mechanism This paper sets out how such a binding mutual access activity outside the EU entirely to centres which do out a substantial amount of their global business from by which the EU and the UK can develop deal can be achieved using the existing mechanism of not seek to have an ability to manage the markets’ London, to have access to counterparties and clients W their own paths but continue to enjoy ‘equivalence’ under EU law, tightening its procedural sentiment over the value of euro credits. across the EU. the close relationship and mutual access that they and substantive protections so as to form a more solid have benefitted from under the single market. foundation for a lasting relationship between the EU Brexit brings with it the opportunity for the EU Overall, it is clearly in the interests of both the EU In that way, the EU can get on with integrating and the UK: the Enhanced Equivalence model.5 and eurozone to refine the regulation specific to and the UK to continue to have one of the two its supervisory and rulemaking approaches, those projects, whilst permitting EU citizens to have world-leading financial centres in their timezones. As particularly around the euro, and the UK can apply The proposal includes a fully worked-out draft frictionless access to the global financial centre on appealing as tearing bits off the City might appear international standards but without being tied to Enhanced Equivalence Regulation (set out in their doorstep. The EU would work together with to certain EU member states, the reality is that the the EU’s approach, or vice versa. Appendix A), envisaged to be adopted by the EU the UK to define high level regulatory outcomes with marginal boosts to their own economies will be more in the normal way prior to Brexit. It also contains a which both UK and EU regulation must comply in than outweighed by the increased costs for their own Why should the EU agree to a mutual access deal proposed draft of the necessary UK implementing order not to give rise to systemic risk for each other consumers and other negative real economy effects that is two-way and binding for financial services, measures (set out in Appendix B). The EU Regulation nor to prejudice each other’s consumer protection of diminishing the magnetism of the City. The real rather than relying upon its unilateral discretions would be brought into UK law as secondary legislation agendas. Establishing a new system which properly winner of such behaviour is actually New York, rather as the European Commission has suggested?4 The under the European Union (Withdrawal) Bill (the so- permits the natural regulatory divergence between than Frankfurt, Paris or Dublin. answer is that without sufficient certainty there will called Repeal Bill) in the UK. The UK implementing the UK and the EU will avoid the ever-increasing still be business fragmentation and less investment measures would make the necessary changes to the tensions of progressively differing needs and aims, Any such approach would also force the UK to in financial services in the EU timezones, because of Regulation to ensure it works in a UK context. There whilst providing maximum benefit to EU citizens. respond aggressively to protect itself, which would the potential for access withdrawal. Warm words are would then be a new UK-EU agreement (set out in mean the EU will have next to no influence over insufficient for business. Instead, there needs to be Appendix C), largely on procedural items, giving The second point to be considered is that the EU financial regulation in its nearest global financial sufficient predictability, provided by Treaty-based certainty to mutual declarations of equivalence across will be damaged unless it continues to collaborate centre and that centre will run itself with no real commitments. the whole financial services sphere. closely with the UK after Brexit. Putting aside the regard for the EU or the euro project.

4 See European Commission Staff Working Document, ‘EU equivalence decisions in financial services policy: an assessment’, SWD (2017) 102 final, 27 February 2017.

5 The EU and the UK may consider it appropriate to adopt a similar approach in contexts other than financial services. However, this is beyond the scope of this particular proposal which focuses solely on financial services.

10 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 11 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

for EU customers and counterparties and increase Secondly, for consumer business, the intention is that 5 the costs of financial services to them. In addition, UK businesses selling into the EU would observe EU and most significantly, any narrower arrangement standards when doing so. The same would also be rendering the UK a rule-taker, as long as it were in true for EU businesses selling into the UK. As for the operation and accepted (at least temporarily) by the sale of goods, the international legal framework is THE CONCEPT OF EQUIVALENCE UK, would exacerbate systemic risks in the global such that sales into any jurisdiction must generally financial markets. It would introduce the new risk comply with local standards. This approach also that prescriptive rules turn out to be inappropriate makes sense for financial services in the context of for the global markets in unforeseen contexts and consumer protection. EU and UK consumers will need that UK supervisors do not have the necessary rule- to be protected from mis-selling and from products quivalence is a concept already provided for approaches and adopt different rules, provided the making and supervisory autonomy to counter that which do not comply with local marketing and extensively in EU financial services laws and relevant regulatory and prudential outcomes are risk and avoid UK taxpayer exposure. This is unlikely consumer protection rules, which must generally be regulations. It is in use for countries as diverse achieved by those rules to the same extent that E to be acceptable politically. Moreover, the result assessed by local regulators. Subject to that, so long as the US, Mexico and Singapore.6 It has caused no those outcomes are achieved by the corresponding would require other states around the world to take as consumers have redress in the UK or relevant EU detriment to the EU economy and indeed has provided EU rules. This is a sensible approach and is capable active steps to protect the international financial member state courts, at their option, in accordance much-needed access to international capital for EU of permitting the necessary degree of divergence markets from the resulting accrual of unnecessary with equivalent consumer protection standards, it financial institutions and large corporates. The proposed so long as outcomes are objectively defined and at risk in those markets. Such steps would further should be permitted to sell products from the UK to Enhanced Equivalence arrangement would reform the a high level. Outcomes are most easily identified weaken the EU’s opportunities for growth and global EU consumers and vice versa. equivalence concept in a manner that is reciprocal so by reference to international standards where those trade - and its reputation. it would permit EU financial institutions and customers exist, such as the Basel capital regime for banks The position is entirely different for the wholesale easy access to the global financial markets hosted in the and investment firms. Where those standards do It is therefore to be assumed that the EU will act markets, where it is well-recognised that market City of London, and vice versa. The essential premise not exist and cannot easily be created, the UK and in its own interests and will not seek to narrow the participants can look after themselves without the of equivalence status is that, having concluded that the EU would need to agree them at a working level. concept of equivalence for the UK, to avoid self- same protection of stricter regulation that consumers third country’s regulatory environment is sufficiently Working relationships are strong and should be up harm. The question then is how outcomes-based enjoy. These market participants include banks equivalent to its own in a specific area of financial to the task of identifying and defining appropriate equivalence is to be properly understood, beyond and other licensed financial services institutions, services, the EU trusts the third country to regulate and outcomes. looking to international standards where possible. fund managers as well as medium- and large-sized supervise its financial services businesses effectively. UK Two other concepts are relevant. First, as has already corporates, amongst others. This position is already financial services laws and regulations would be deemed The European Commission appears to be seeking been identified in EU financial services legislation, recognised across the EU in the harmonised reverse equivalent across the board to those in the EU, allowing to narrow the concept of equivalence for significant a key factor that must be observed in relation to solicitation regime contained in Article 46(5) of the for institutions located in the UK to be regulated solely investment businesses. In recent proposals8 it equivalence-based access is not inserting systemic Markets in Financial Instruments Regulation (MiFIR), in the UK whilst providing services and products to states that third country provisions may only be risk into the EU markets – and vice versa.10 Quite which permits EU wholesale customers at their own customers across the EU, and permitting EU businesses considered to have equivalent effect to the EU’s naturally, no system would be acceptable were it to volition to opt out of EU regulation and into the similar unfettered access to the UK’s global markets requirements in that context after a detailed and insert significant systemic risk into the EU, though any international markets, protected by the laws and whilst being regulated solely in the EU. This proposal granular assessment, taking account of supervisory possibility of systemic risk needs to be viewed against regulations of the financial services provider. This has the potential to replicate the effects of the passport convergence.9 This approach seems designed the backdrop of an equivalence framework where the is an important point which reflects international but on the basis of ‘equivalent’ regulation rather principally for the UK. However, any narrowing, EU regulators can rely on the effectiveness of UK law, best practice and allows for true interconnectivity than ‘identical’ regulation, allowing for much-needed were it to be adopted, would be misguided in that regulation and supervision, and vice versa. It is not between the EU and global economies. The EU divergence between UK and EU regulation. The extent of it would render more brittle any mutual recognition therefore envisaged that this concept would act as a has been a pioneer in promoting the free flow of that divergence will depend on the precise meaning of arrangement entered into with the UK and would barrier or even a brake on recognition, but it should capital internationally, and to this end has enshrined equivalence. make more unlikely the long-term adoption by the be borne in mind at the edges when identifying a prohibition on restrictions of internal capital UK of equivalence-based access to the EU’s markets. compliance with certain outcomes. movement in its Treaties.11 Under current EU law equivalence is based on This would, as explained in The Case for UK-EU outcomes.7 Third countries can take alternative Collaboration above, ultimately reduce the choices

10 See, for example, recitals 7 to 8 of the European Market Infrastructure Regulation (EMIR) (Regulation (EU) No 648/2012). Recital 8 states that ‘It is appropriate and necessary in this context [i.e. determining whether a foreign regulatory system should be regarded as applying equivalent regulatory standards as applicable in the EU] to verify the effective equivalence of foreign regulatory systems in order to… mitigate systemic risk’. See also recital 44 of MIFIR (Regulation (EU) No 600/2014). The European Commission has also confirmed that equivalence determinations are primarily guided by the principle of 6 For a summary of the numerous jurisdictions for which equivalence decisions have been adopted, see the European Commission’s overview table of proportionality and a risk-based approach. This involves early identification of ‘risks to the EU financial system which may be arising as a result of an increased ‘Equivalence Decisions adopted by the European Commission’, 3 October 2017, available on the European Commission’s website. exposure to a specific third-country framework’ (see European Commission Staff Working Document, ‘EU equivalence decisions in financial services policy: an assessment’, SWD (2017) 102 final, 27 February 2017). 7 For example, Recital 41 of the Markets in Financial Instruments Regulation (MiFIR), No 600/2014, states: ‘The equivalence assessment should be outcome- based; it should assess to what extent the respective third-country regulatory and supervisory framework achieves similar and adequate regulatory effects and 11 See Article 63(1), TFEU: ‘Within the framework of the provisions set out in this Chapter, all restrictions on the movement of capital between Member States to what extent it meets the same objectives as Union law.’ Michel Barnier, the European Chief Negotiator in the Brexit negotiations, has previously confirmed and between Member States and third countries shall be prohibited.’ this approach. See for example his Financial Times article in 2012 and his statement in 2014.

8 Proposed Regulation on the prudential requirements of investment firms and amending Regulations (EU) No 575/2013, (EU) No 600/2014 and (EU) No 1093/2010, 2017/0359 (COD). The Proposed Regulation and the related Proposed Directive on the prudential requirements of investment firms and amending Directives 2013/36/EU and 2014/65/EU are intended to enhance competition and support the objectives of the EU Capital Markets Union.

9 Revisions to Article 47 of MiFIR contained in Article 61 of the Proposed Regulation.

12 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 13 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

6 8

BRANCH ACCESS ENHANCED EQUIVALENCE

t would also be desirable on both sides to operate in the UK’s wholesale markets. Therefore, a recognise branch access in a similar manner to system which permits the UK regulators to rely on EU I that permitted at present under the passport. This regulators for home state oversight in the context of is because the costs of subsidiarising in the City of the EU headquarters for UK branches, and vice versa, London are prohibitive for EU businesses seeking to would be desirable.

7

SHARED SOVEREIGNTY AND JOINT SUPERVISION

he EU and UK should not seek to interfere in in accordance with the regulatory arrangements each other’s jurisdictions through attempts at between the EU level and member state level T shared sovereignty or joint supervision. Even regulators), needs to have the final say on matters, were such arrangements to be acceptable politically, particularly those directly relating to systemic and which is doubtful, they would be dangerous and idiosyncratic risk. There cannot be ambiguity on this undesirable. They would introduce perilous new point. risks into the system by slowing down processes and forcing them through committee-based structures Both the EU and UK will need nevertheless to be ill-suited to dynamic and safe supervision. The watchful for any build-up of systemic risk in their inevitable differing interests between the EU respective jurisdictions. There will need to be he proposal set out in this paper pulls together Brexit is, of course, the catalyst for a proper consideration (including the eurozone) and the UK could not be collaboration and information-sharing between the myriad of existing EU equivalence of the mechanisms by which equivalence operates in the bridged on the real-time basis that would be required. both sets of regulators going forward, and the T provisions in the financial services context. It EU. But a review is, in reality, needed in any event – Brexit Differences of view would delay decisions, introducing sophisticated network of information-sharing fills in the gaps, for instance for commercial lending, or no Brexit. The various existing equivalence regimes entirely new risks into the markets, to worldwide arrangements that has been built up over the years UCITS, primary insurance, insurance mediation have been developed piecemeal, and therefore lack the detriment. should of course be utilised to the fullest extent and payment services. It unifies the procedures coherence, predictability and utility that a sophisticated possible. But this collaboration should be based on an for granting equivalence status and provides for review could identify. The proposal to overhaul the One regulator in each jurisdiction, that is to say, arrangement that falls short of shared sovereignty or additional protections for the EU as already envisaged various regimes in this regard could be of significant one for the UK and one for the EU (in the EU’s case joint supervision. in many EU equivalence laws. It also provides for benefit to the EU entirely outside the Brexit context. dependability and certainty through provisions setting Similarly, the EU-UK bilateral agreement presented here out base-line procedural safeguards and facilitating has been developed with Brexit in mind, but could quite a UK-EU agreement to establish further procedural straightforwardly be developed by the EU to provide for safeguards, dispute resolution and consultation a template for an even closer relationship with other third processes. countries, and not just the UK.

14 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 15 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

8.1 THE EQUIVALENCE REGULATION included in the (now-abandoned) 2016 proposed The draft Regulation includes a branch access regime, There are minimal substantive differences between settlement between the UK and the EU negotiated by based on current passporting concepts of home state these measures and the Equivalence Regulation. The proposal contained here consists of a draft David Cameron. This indicates that its inclusion here prudential regulation, with host state conduct and These comprise only substitutive cross-reference Equivalence Regulation,12 which would be bolstered is likely to be viable and politically acceptable.18 liquidity regulation.22 The Regulation provides for changes necessary to refer to the correct provisions by a bilateral mutual recognition agreement to cooperation agreements with third country regulators of EU legislation as imported into UK national law implement greater procedural protections, dispute For wholesale business the high level outcomes for, inter alia, coordinating regulatory developments, under the UK Repeal Bill or to other relevant national resolution and coordination processes between the must not pollute the other jurisdiction’s system (the tax information and enforcement.23 It also provides implementing measures which have transposed UK and the EU. The Regulation removes restrictions ‘systemic risk test’).19 For retail business, the other for the grandfathering in of existing recognitions so existing EU directives into UK law. There are also as to available business models, so that it covers all jurisdiction’s consumer protection standards must be no new applications need to be considered where changes in references to regulatory bodies from EU to types of services on a two-way, UK to EU and EU to observed (the ‘consumer protection test’).20 These equivalence has already been granted under existing UK equivalents. UK basis.13 It also removes restrictions as to the types tests are well understood and, properly implemented, equivalence provisions.24 Interim, transitional and of EU clients that may be accessed by UK service would facilitate the use of equivalence in a transparent temporary equivalence recognitions are also possible. 8.3 UK-EU AGREEMENT providers, providing for retail as well as wholesale and flexible manner, while maintaining confidence and These will provide additional flexibility for a variety recognition.14 protecting key interests. of contexts. The approach continues the history of The proposal also contains sections of a draft bilateral transitional equivalence recognitions that have been UK-EU Agreement,29 which could form part of an The concept of equivalence is defined across the The Regulation envisages a menu of areas in successfully used in the past.25 FTA or an MRA. Either approach would comply with entirety of the framework. There would be the which a third country can be granted equivalence the requirements of the World Trade Organisation same decision-makers in each case – the European status. The menu would cover the existing areas The Regulation provides for two tracks for equivalence (WTO).30 The UK and EU would enter into the Commission with assistance from the ESAs. They where equivalence determinations already exist relationships. First, the default is for standalone Agreement as part of the Brexit deal and it would be would look to ensure the relevant high level outcomes and also those additional areas that fill in the equivalence determinations for third countries, as effective on Brexit. The Agreement has only a few are met by the UK or other relevant third country gaps. Third countries could opt for equivalence to now, with limited base-level procedural safeguards.26 mandatory elements, leaving flexibility for bilateral seeking equivalence status. The draft Equivalence facilitate cross-border access in specific financial Second, the Enhanced Equivalence track provides for negotiations. In particular, the Regulation provides Regulation prioritises an assessment based on services sectors only, leaving out those areas the ability to agree a mutual recognition agreement that the EU can agree specific arrangements for international standards, and the concept of materiality where there is no alignment of outcomes. Core (MRA) concluded with third countries under which a equivalence with third countries.31 contained within it establishes a further level of overarching principles are also encoded in the comprehensive range of equivalence recognitions would abstraction from line-by-line comparison; there is a draft Regulation which govern the manner in be granted (two-way) and protected by the procedures The Agreement would be negotiated on behalf of requirement as well to consider market evidence.15 which agreed equivalence recognitions should be of an agreement.27 This could feasibly be agreed as a the EU by the European Commission and approved Optionality for an ‘international competitiveness’ interpreted in Union law (and, correspondingly, standalone MRA or as a financial services chapter in a by the European Council.32 It would be two-way, principle is also included.16 It is in the interests of in UK law when the Equivalence Regulation is comprehensive, multi-sector free trade agreement (FTA). providing benefits for EU financial services customers EU firms and investors that the equivalence concept grandfathered into domestic legislation). These and counterparties, as well as UK financial services encourages the acceptance of standards which principles include commitments to act in good faith, 8.2 THE UK IMPLEMENTING MEASURES customers and counterparties. The Agreement maintain free global competition and diverse choices in a non-discriminatory and transparent manner would provide for certainty by way of Treaty-based of financial services products and services. The and a commitment not to act inconsistently with The draft UK Implementing Measures ensure the commitments for equivalence declarations to be made European Commission has itself acknowledged that equivalence recognitions that have been granted.21 Equivalence Regulation, when finalised, is adopted into immediately after Brexit across all areas of financial promoting the EU’s competitiveness is a positive These principles would also be reflected in the UK law in a mirror fashion that provides the necessary services business, and commitments to maintain them effect of an equivalence determination.17 Additionally, bilateral agreement as enforceable commitments reciprocal underpinnings for the UK-EU Agreement.28 in accordance with the FTA or MRA.33 ‘promoting the competitiveness of the EU’ was provided by both jurisdictions.

22 See Appendix A, Draft Equivalence Regulation, Article 11 and Annexes I and II.

23 See Appendix A, Draft Equivalence Regulation, Articles 3(2)(e) and 6. 12 Appendix A. 24 See Appendix A, Draft Equivalence Regulation, Article 15(1). 13 See Appendix A, Draft Equivalence Regulation, Article 3 and Annexes I and II. 25 For example, Commission Decision 2008/961/EC accepting US (and Japanese) GAAP as equivalent to IFRS; see also Commission Implementing Decision 14 See Appendix A, Draft Equivalence Regulation, Article 3 and Annexes I and II. 2008/961/EC, which granted temporary equivalence to the GAAP of China, Canada, South Korea and India. In 2012, Commission Implementing Decision 2012/194/EU granted permanent equivalence to the GAAP of China, Canada and South Korea. 15 See Appendix A, Draft Equivalence Regulation, Recitals 10 and 11 and Articles 2(36) and 3(3). 26 See Appendix A, Draft Equivalence Regulation, Recital 6 and Article 1. 16 See Appendix A, Draft Equivalence Regulation, Recital 13. 27 See Appendix A, Draft Equivalence Regulation, Recital 6 and Article 1. 17 ‘In some other cases, the positive effects of an equivalence finding have to be assessed by taking into consideration the impacts on EU market participants and non-EU financial sector entities, in particular to allow EU market participants [to] have a wider range of services and transaction choices that would be 28 Appendix B. compliant with EU regulatory purposes’, European Commission, Commission Staff Working Document, ‘EU equivalence decisions in financial services policy: an assessment’, SWD (2017) 102 final, 27 February 2017. 29 Appendix C.

18 Promoting the competitiveness of the EU was agreed as part of the UK Settlement. See ‘A New Settlement for the United Kingdom within the European 30 An FTA would be entered into in accordance with Article V of the General Agreement on Trade in Services (GATS). The FTA would need to cover topics other Union’ (2016/C 69 1/01), which stated that the EU must ‘enhance its competitiveness’ (Section B: Competitiveness) which means ‘lowering administrative than financial services as well, in order to satisfy the GATS requirement for such agreements to have ‘substantial sectoral coverage’. Alternatively the bilateral burdens and compliance costs… and repealing unnecessary legislation’. Agreement could be entered into as an MRA under Article VII of GATS.

19 See Appendix A, Draft Equivalence Regulation, Article 2(36)(b). 31 See Appendix A, Draft Equivalence Regulation, Article 8.

20 See Appendix A, Draft Equivalence Regulation, Article 2(36)(a). 32 See Appendix A, Draft Equivalence Regulation, Article 8.

21 See Appendix A, Draft Equivalence Regulation, Recitals 7, 8, 14, 15 and 16. 33 See Appendix C, Draft EU-UK Bilateral Agreement, Article 3 and Recitals.

16 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 17 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

When equivalence has been committed to, it may not is a process for agreeing outcomes in entirely new be withdrawn except where an objective divergence areas.37 9 occurs. In this context it should be considered whether the EU or UK could subsequently make a new law in There is then a series of options. There could be a an identical area so as to introduce new ‘outcomes’. joint committee38 that enables the EU and UK to work One approach would be to mandate the outcomes together on new proposals, which would give EU NEXT STEPS: IMPLEMENTATION required in a particular sector, agreed up front, so that regulators an ongoing seat at the table in the shaping neither the EU nor UK can add to them. There could of new financial regulations in the UK, and vice be an exception to this where there has been a proper versa. There could also be consultation processes,39 consultation process, carried out in accordance with the coordination processes,40 provisions for mediation41 Agreement, to revise the Agreement and to determine and private law remedies for private parties affected new outcomes in an objectively fair manner.34 by breaches of the Agreement.42 The draft takes such provisions from the CETA precedent. The Agreement provides for a supra-national court, formed from both parties, which would assess Because these provisions would all be contained in compliance with the equivalence commitments.35 an FTA or an MRA, there would be no requirement for If either party departed from its commitments, Most Favoured Nation treatment of other countries. there would be a breach of Treaty actionable under However, in the case of an MRA, under the General international law and enforceable in the new supra- Agreement on Trade in Services (GATS) the UK and national court.36 This provision is based on that in EU would need to accord ‘adequate opportunity’ to the Canadian Comprehensive Economic and Trade other WTO members to either accede to the MRA or Agreement (CETA). negotiate comparable agreements.

There would be notice periods for new areas and for In addition, the draft Agreement removes any residual the withdrawal of equivalence in any area. There concerns over any potential cliff edge.43

34 See Appendix C, Draft EU-UK Bilateral Agreement, Article 6.

35 See Appendix C, Draft EU-UK Bilateral Agreement, Article 8.

36 See Appendix C, Draft EU-UK Bilateral Agreement, Article 8.

37 See Appendix C, Draft EU-UK Bilateral Agreement, Articles 2 and 4.

38 See Appendix C, Draft EU-UK Bilateral Agreement, Article 5.

39 See Appendix C, Draft EU-UK Bilateral Agreement, Article 6.

40 See Appendix C, Draft EU-UK Bilateral Agreement, Article 6. 41 See Appendix C, Draft EU-UK Bilateral Agreement, Article 7. he Regulation would be adopted by the So the UK would end up with its own version of the 42 See Appendix C, Draft EU-UK Bilateral Agreement, Article 9. European Council passing it by qualified Equivalence Regulation, given that the Equivalence 43 See Appendix C, Draft EU-UK Bilateral Agreement, Article 2.14. T majority vote, and by a majority of MEPs in Regulation would (it is envisaged) be adopted by the European Parliament voting in favour. If this is the EU before Brexit. The proposed implementing achieved prior to Brexit the UK could assist in Council measures change the relevant references from ESMA, in finalising the arrangements satisfactorily and UK the EBA and EIOPA to the Prudential Regulation MEPs could do the same in the European Parliament. Authority, Financial Conduct Authority and so on, and make the other adjustments necessary to ensure the The proposal contains the UK’s implementing Regulation works in an identical manner under UK measures. These implementing measures will require law.44 a negative consent procedure to be adopted by the UK Parliament and are based on the most recent The Agreement would be negotiated by the European draft of the European Union (Withdrawal) Bill. That Commission and UK Government and approved by the Bill will bring the Equivalence Regulation and other European Council and the UK Parliament. It would be EU regulations into UK law, on the basis of terms entered into before Brexit and would take effect from currently subject to debate in the UK Parliament. the date of Brexit.

44 See Appendix B, Draft UK Implementation of the Equivalence Regulation, Schedule 1.

18 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 19 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

10

CONCLUSION

he result of adopting these (WTO-compliant) widespread welcome from market participants and proposals would be that each of the UK the UK Government and across the EU.45 Indeed, T and EU can pursue their own approach to most of the discussion about the future relationship regulation, subject to achieving similar outcomes. between the UK and the EU has involved the use UK regulators have already endorsed the use of of the EU’s equivalence concept. This concept international standards, so the proposals go with represents a huge achievement of the EU to date the grain of the practicalities. It would ensure in the recognition of providers’ access to the EU both the UK and EU are able to tailor their regimes for financial services. On its own, left unamended, appropriately. Indeed, in the context of the it would not be capable of achieving the purposes consolidation of the eurozone this structure is a neat desired by the UK or EU after Brexit. But if it were to solution to the problems that were building up within be enhanced only slightly, as set out herein, it would the EU architecture in accommodating both the UK provide for a strong and stable long-term relationship and the eurozone. between the EU and UK which permits the EU to serve the best interests of its citizens and to continue the So far, the evidence is that proposals for a cross- highly productive relationship with the UK in financial border deal for financial services under equivalence services which has been developed and enjoyed or other mutual recognition concepts have met with successfully over many years.

45 See ‘Mutual Recognition – A Basis for Market Access After Brexit’, International Regulatory Strategy Group, 11 April 2017; ‘JP Morgan calls for UK-EU financial services free trade deal post-Brexit’, Financial Times, 15 November 2017; ‘Preparing for our future UK trade policy’, Department for International Trade, CM 9470, October 2017; section 8.23, ‘The United Kingdom’s exit from, and new partnership with, the European Union, Department for Exiting the European Union, 15 May 2017; section 4.5, ‘Implications of Brexit on EU Financial Services’, ECON Committee, European Parliament, IP/A/ECON/2016-22, June 2017.

20 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 21 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

Appendix A DRAFT EQUIVALENCE REGULATION

22 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 23 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

REGULATION (EU) [•]/20[•] OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of [•] on the reductions and eliminations of overlaps in compliance the Union’s regulatory framework. recognition of the equivalence of third country financial services regimes for undertakings authorised in the Union and for Union competent authorities; (ii) a less burdensome 10. Assessments of equivalence shall be transparent prudential regime for Union financial institutions’ and involve consideration of material factors based on THE EUROPEAN PARLIAMENT exposures to third-country entities; and (iii) a wider relevant technical advice, including advice requested range of choice for Union firms and investors in from any relevant specialist bodies (and any AND THE COUNCIL OF THE terms of services, products and investment choices previously issued guidance from such bodies) and in a originating from third countries. Similar benefits will manner which is proportionate to the level and nature EUROPEAN UNION also apply from the third country’s perspective. of access or recognition that is, or would be, granted. 06. The Union’s current equivalence framework 11. In undertaking assessments of equivalence, the Having regard to the [Treaty on the Functioning of the European Union] and in particular consists of provisions recognising the equivalence Commission (and any relevant European Supervisory [Article 114, 207, 212, 216, 290 and 291]46 thereof, Having regard to the proposal from the European Commission, of third country financial services regimes that are Authority) is obliged to consider the views of, or any interspersed amongst various Union legislative technical data or market evidence provided by, market [After transmission of the draft legislative act to the national parliaments,] acts and are of divergent scope and effect in Union participants, including but not limited to market law. The effectiveness and value of the current participants established in the Union and the relevant Having regard to the opinion of [•], Whereas: equivalence framework can therefore be enhanced by third country, and where relevant, international bodies a consolidated and consistent equivalence concept and such as the Basel Committee on Banking Supervision, assessment process, additional procedural safeguards, the Financial Action Task Force, the Financial Stability 01. The current trend in financial services regulation available to customers and undertakings in the Union. and the ability to establish broad and comprehensive Board, the International Association of Insurance in the Union and many third countries has been enhanced equivalence relationships governed by Supervisors, the International Accounting Standards to participate in the development, adoption and 04. The current framework for recognising the and subject to any additional procedural protection Board, the International Monetary Fund and International recognition of standards that are consistent with equivalence of standards applied by the financial established by bilateral mutual recognition agreements. Organization of Securities Commissions. Where international norms. These include those developed services regimes of third countries pursues a number there are concerns regarding confidentiality, national by the International Organization of Securities of general objectives. The ability to recognise the 07. Equivalence is based on the Union and the third competent authorities within the Union may coordinate Commissions, the Financial Stability Board, the Basel equivalence of regulatory requirements imposed country giving legal effect to agreed equivalence with market participants in their jurisdiction, including Committee on Banking Supervision, the International by third-country financial services regimes with recognitions and third-country provisions corresponding handling any data received from market participants. Monetary Fund, the International Association corresponding regulatory requirements applicable to an equivalence provision (subject to any specific of Insurance Supervisors and the International in the Union is in the interests of the Union. First, terms and conditions contained in a relevant mutual 12. Equivalence is premised on the Union and Accounting Standards Board. this balances the needs of financial stability and recognition decision or agreement) on a reciprocal basis. the relevant third country achieving the same key investor protection in the Union with the benefits of outcomes, but not necessarily adopting the same 02. Having regard to the interests of the consumers maintaining open and globally integrated EU financial 08. The Union and third countries should not adopt approach or legal wording. Alternative approaches and participants in the Union’s financial services markets. Secondly, regulatory convergence around measures in their legal systems which are inconsistent from those taken in the Union to reducing prudential sector (including, credit institutions, financial international standards is promoted in addition to with the legal effect that the agreed recognition risk (or other regulatory outcomes) may legitimately institutions, insurers, reinsurers, fund managers, central reinforcing supervisory co-operation between the provisions and the third-country provisions be adopted within the framework of continuing counterparties, regulated markets, OTFs, MTFs, trade Union and relevant third countries. Thirdly, the cross- corresponding to equivalence provisions (subject to equivalence, so long as those approaches remain repositories; and their customers), it is in the interests border activities of financial markets participants are any specific conditions contained in a relevant mutual equivalent. Where divergence of approaches is a of the Union to develop an enhanced framework for managed effectively and proportionately in a secure recognition decision or agreement) are intended concern, an assessment of the materiality of said the Union to make individual recognition decisions and prudential environment with third countries that adhere to have, unless the appropriate procedures, if any divergence, including its impact on the Union and the to negotiate and conclude bilateral mutual recognition to, implement, and rigorously enforce equivalent high have been established under any mutual recognition relevant third country should be undertaken. agreements with third countries to establish enhanced standards of prudential rules as the Union. agreement (including any advance notice periods) equivalence relationships. have been complied with. 13. [The Union and the relevant third country 05. Where a third country’s financial services regime should commit to implementing reforms to their 03. The recognition of equivalence is intended to is recognised as applying equivalent standards to 09. Equivalence is intended to enable the Union to respective legal and supervisory regimes to further promote regulatory convergence with international those applied in the Union, there are benefits to the rely on the compliance by undertakings established competitiveness in their financial services sectors. norms, reduce prudential and supervisory burdens, and Union and to the relevant third country. These benefits in third countries with the third country’s regulatory Consistent with one of the objectives of equivalence increase the choice of financial services and products include, but are not limited to, the following: (i) framework and, for undertakings established in the recognition, furthering competitiveness and increasing Union, for the third country to rely on supervision and the choice of third country financial services and compliance in the Union, ensuring compliance with products available in the Union may require the

46 NOTE: Article 114 of the Treaty on the Functioning of the European Union has not been chosen as the sole base for the Regulation as this relates to measures for the harmonisation of the internal market only. Articles 207, 212 and 290 of the Treaty have been included as well for consideration. Article 207 relates to the common commercial policy of the Union. Article 212 relates to economic, financial and technical cooperation measures. Article 216 relates to the

DRAFT EQUIVALENCE REGULATION Appendix A DRAFT EQUIVALENCE Union’s competence to conclude agreements with third countries for the objectives contained in, inter alia, a legally binding Union act. Articles 290 and 291 relate to the Commission’s powers to adopt legal and non-legal delegated acts.

24 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 25 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

implementation of new equivalence provisions in has been made for such purposes in the relevant satisfying such requirements (as described in the future Union legislation.]47 mutual recognition agreement)] where private relevant recognition decision or mutual recognition parties have suffered loss or damage as a result of agreement).]51 14. The Union and the relevant third country the Union or relevant third country’s suspension of should commit to ensuring that requirements and the legal effect of agreed equivalence, recognition 20. Mutual recognition agreements may incorporate obligations under their legal regimes relating to the or other legislative developments in the Union or any further principles as agreed between the Union authorisation, licensing and supervision of financial third country which are inconsistent with the agreed and the relevant third country, providing these do not services businesses are clear, transparent, objective, equivalence recognition (and any reciprocal third conflict with the principles set out in this Regulation. established in advance, and made publicly accessible. country recognition provisions) applicable between Where discretionary powers are established they the Union and the relevant third country. Union or HAVE ADOPTED THIS REGULATION should be exercised consistently with those principles third country undertakings should only be entitled to should not be exercised arbitrarily. a legal remedy where the suspension or legislative development was not effected in accordance with the 15. The Union and the third country must act in good applicable notice and change procedures, including faith in developing future laws based on independent any that have been agreed in the relevant mutual standards referenced in this Regulation. It is in the recognition agreement. Such Union or third country interests of the Union to further develop and add to entities shall not be prevented from seeking any other existing equivalence recognition provisions if these legal remedy that they may be entitled to under the may: (i) reduce or eliminate overlaps in compliance and legal regime of the third country or of the Union, or supervision for relevant institutions and Union regulators; public international law.]49 (ii) allow the application of a less burdensome prudential regime for Union financial institutions’ exposures to 18. [Equivalence should provide stable and certain equivalence third countries; and (iii) provide firms and effects for participants in the Union’s and relevant investors in the Union with a wider range of services, third country’s financial services sectors. Assessments instruments and investment choices that may still satisfy of equivalence should consider financial services the regulatory objectives that are pursued in the Union. regimes as a whole, and a failure to meet any of the recognition conditions should be determined on 16. The Union and the relevant third country should relevant outcomes not being achieved due to the commit to acting in a non-discriminatory manner in the overarching approach adopted by a financial services application of any requirements under their respective regime, instead of a specific requirement in one financial services regimes generally and should ensure jurisdiction’s regime being precisely reflected in the that other legal requirements do not discriminate legal drafting of laws in the other jurisdiction.]50 between undertakings in the Union and undertakings in the third country. [In particular, discrimination between 19. [Where additional requirements for a third- natural or legal persons based on the official currency country entity that carries out cross-border financial of the jurisdiction, or the currency that has legal tender services activities to register with Union authorities in the jurisdiction, where that natural or legal person is are imposed under an existing equivalence provision established is prohibited.]48 even though the relevant third country has been determined to be equivalent, equivalence decisions 17. [Union or third country undertakings shall be or mutual recognition agreements may provide able to seek legal remedy regarding the resolution of for alternative and substitutive registrations (and disputes between private parties and the parties to the conditions applicable to such alternative and the mutual recognition agreement [(where provision substitutive registrations) which shall be treated as

47 NOTE: Promoting competitiveness is one of the fundamental aims of the single market, and it should be noted that promoting competitiveness of the Union has previously been agreed to by the EU before (see New Settlement for the United Kingdom within the European Union (2016/C 69 1/01). The Settlement states that the EU must “enhance its competitiveness” (Section B: Competitiveness) which means “lowering administrative burdens and compliance costs...and repealing unnecessary legislation”. While the Settlement was conditional on a referendum result to remain in the EU, the Settlement may still be an indication of what is politically viable.

48 NOTE: This is another aspect from the Settlement mentioned above, and again may be indicative of what is politically viable.

49 NOTE: A principle regarding the availability of private law claims against either party to a mutual recognition agreement is included as an option for consideration. 51 NOTE: Some existing equivalence provisions in EU legislation require equivalent third-country firms to register with Union authorities before they are entitled to the benefits granted under the particular equivalence provision. This option considers alternative, substitutive registration requirements to be treated

DRAFT EQUIVALENCE REGULATION Appendix A DRAFT EQUIVALENCE 50 NOTE: This recognition principle emphasises that equivalence status and recognition depends on a ‘holistic’ assessment, and should not rely entirely on as having satisfied the Union’s registration requirements e.g. if such firms are already listed on the third country’s financial services register for a particular specific rules being implemented in the relevant third country. regulated activity.

26 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 27 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

ARTICLE 1 SUBJECT MATTER

01. This Regulation is intended to enhance and agreement is in place between the Union and that supplement Union legislation regarding the third country. equivalence of third country legal and supervisory regimes for various purposes, by harmonising 03. This Regulation consolidates the existing the concepts, rationale and process applicable to equivalence regimes, and extends equivalence existing equivalence regimes under other pieces of provisions to areas which are currently not covered, Union legislation, by consolidating the areas where but which it would be desirable to be covered by equivalence can be determined and ensuring that an equivalence determination, and subject to an all aspects of the relevant regimes are covered by equivalence process. equivalence determinations, and by establishing a consolidated framework for recognising the 04. This Regulation also enables equivalence equivalence of third country legal and supervisory recognitions to be granted under mutual recognition regimes for financial services and applying uniform agreements to be concluded with third countries Appendix A DRAFT EQUIVALENCE REGULATION conditions for such recognitions and processes to establish a comprehensive range of equivalence for the continued application of equivalence recognitions governed by additional procedural determinations. safeguards to be negotiated with such third countries.

02. This Regulation aligns the existing equivalence 05. Existing recognitions granted pursuant to regimes under other pieces of Union legislation by equivalence provisions regarding the relevant third SUBJECT MATTER, setting out a consistent equivalence concept and country will continue in full force and effect until such assessment process and establishing principles which time as a mutual recognition agreement is adopted, or shall apply to the determination of third country they are otherwise amended or revoked in accordance SCOPE AND equivalence status under all equivalence recognition with the procedure in the relevant Union legislation or provisions, whether or not a mutual recognition the transitional procedures set out in Article 15.

DEFINITIONS ARTICLE 2 Chapter I DEFINITIONS

For the purposes of this Regulation, the following 02. ‘administrator of benchmarks’ means an definitions shall apply: administrator within the meaning of Article 3(6) of Regulation (EU) 2016/1011; 01. ‘additional equivalence criteria’ means the additional criteria listed in the column headed 03. ‘agreed equivalence recognition’ means an ‘additional equivalence criteria’ in the relevant equivalence recognition provision that has been included rows of the tables at Annex I [and Annex II] of this in a particular mutual recognition agreement or that has Regulation that correspond to and that are applicable been adopted by the Commission by an implementing to a specific equivalence recognition provision, and act pursuant to Article 3 of this Regulation; describe material outcomes to be considered amongst other recognition conditions. Additional equivalence 04. ‘AIF’ means an AIF within the meaning of point criteria are indicative and do not necessarily, in (a) of Article 4(1) of Directive 2011/61/EU; themselves, require a specific standard, rule or approach to be adopted for equivalence recognition 05. ‘AIFM’ or ‘alternative investment fund manager’ under Article 3; means an AIFM within the meaning of Article 4(1)(b) of Directive 2011/61/EU;

28 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 29 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

06. ‘ancillary insurance intermediary’ means an 17. ‘central counterparty’ or ‘CCP’ means a CCP 29. ‘derivatives’ means those financial instruments [The fact that a specific standard or requirement ancillary insurance intermediary within the meaning of within the meaning of Article 2(1) of Regulation (EU) defined in point (44)(c) of Article 4(1) of Directive is applied in the Union shall not affect whether point (4) of Article 2(1) of Directive (EU) 2016/97; No 648/2012; 2014/65/EU; and referred to in Annex I, Section C, (4) non-Union standards are equivalent, unless to (10) thereto; the specific Union standard or requirement is 07. ‘ancillary risks’ means risks that may be insured 18. ‘central securities depository’ or ‘CSD’ means a also applied generally in relevant international in addition to a particular primary risk pursuant to central securities depository within the meaning of 30. ‘electronic money institution’ means an electronic standards, guidance, or conventions, or unless Article 16 of Directive 2009/138/EC; point 1 of Article 2(1) of Regulation (EU) No 909/2014; money institution within the meaning of Article 2(1) of the outcomes listed in points (a) - (b) are not Directive 2009/110/EC; satisfied]; 08. ‘appointed representative’ means an appointed 19. ‘collateral security’ means collateral security within representative within the meaning of Article 4(8) of the meaning of Article 2(m) of Directive 98/26/EC; 31. ‘electronic money issuer’ means an electronic 37. ‘EU AIF’ has the meaning given to EU AIFs in Directive 2014/17/EU; money issuer within the meaning of Article 2(3) of point (k) of Article 4(1) of Directive 2011/61/EU; 20. ‘consumer credit activities’ means operating as, Directive 2009/110/EC; 09. ‘approved publication arrangement’ or ‘APA’ or carrying out services typically carried out by, a 38. ‘European Banking Authority’ or ‘EBA’ means the means an approved publication arrangement within creditor,52 or a credit intermediary, including ancillary 32. ‘electronic money’ means electronic money within body established by Regulation (EU) No 1093/2010; the meaning of point (52) of Article 4(1) of Directive services, in relation to credit agreements53 and the meaning of Article 2(2) of Directive 2009/110/EC; 2014/65/EU; consumers; 39. ‘European Insurance and Occupational Pensions 33. ‘eligible counterparties’ means parties that may Authority’ or ‘EIOPA’ means the body established by 10. ‘arbitration panel’ means the arbitrators that 21. ‘consumer’ means a consumer within the be recognised as eligible counterparties pursuant to Regulation (EU) No 1094/2010; are appointed in accordance with Article 12 and the meaning of Article 3(a) of Directive 2008/48/EC; Article 30 of Directive 2014/65/EU; arbitration process established therein and for the 40. ‘European Securities and Markets Authority’ or purposes of resolving disputes relating to a particular 22. ‘credit agreement’ means a credit agreement 34. ‘ELTIF’ means an ELTIF within the meaning of ‘ESMA’ means the body established by Regulation mutual recognition agreement; within the meaning of Article 4(3) of Directive Article 1(1) of Regulation (EU) 2015/760; (EU) No 1095/2010; 2014/17/EU or a credit agreement within the meaning 11. ‘arbitration process’ means the arbitration process of Article 3(c) of Directive 2008/48/EC; 35. ‘equivalence recognition provision’ means a 41. ‘European Supervisory Authorities’ comprises that may be established under a mutual recognition provision listed in the rows of the table at Annex I supervisory authorities that are responsible for agreement, and that complies at least with the 23. ‘credit institution’ means a credit institution [and Annex II] of this Regulation recognising that the microprudential oversight at the European Union provisions of Article 12, for the purposes of resolving within the meaning of point (1) of Article 4(1) of legal and/or supervisory regime of a third country Level, namely the European Banking Authority, any dispute concerning the interpretation, application Regulation (EU) No 575/2013; applies requirements that are at least equivalent to European Securities and Markets Authority and the and implementation within the Union or relevant third those that are applied in the Union for the purposes of European Insurance and Occupational Pensions country of a mutual recognition agreement; 24. ‘credit intermediary’ means a credit intermediary enabling entities supervised in third countries to carry Authority; within the meaning of Article 4(5) of Directive out financial services business in the Union; 12. ‘ARM’ means an approved reporting mechanism 2014/17/EU; 42. ‘existing equivalence regimes’ means the within the meaning of point (54) of Article 4(1) of 36. ‘equivalent’ means requirements or standards provisions contained in various pieces of Union Directive 2014/65/EU; 25. ‘credit rating agency’ means a credit rating that are materially similar to the corresponding legislation recognising that, for various purposes and agency within the meaning of point (b) of Article 3(1) requirements or standards that are applied in the effects, the legal regime of a third country applies 13. ‘audit firm’ means an audit firm within the of Regulation (EC) No 1060/2009; Union. Whether requirements or standards are requirements at least equivalent to those that are meaning of Article 2(3) of Directive 2006/43/EC; equivalent shall be determined, primarily, upon applied in the Union, and which are listed in Annex III; 26. ‘creditor’ means a creditor within the meaning whether the following outcomes are achieved, taking 14. ‘benchmark’ means a benchmark within the of Article 4(2) of Directive 2014/17/EU or within the into account that alternative approaches achieving 43. ‘existing recognitions’ means implementing meaning of Article 3(3) of Regulation (EU) 2016/1011; meaning of Article 3(b) of Directive 2008/48/EC; the same outcomes may legitimately be adopted and measures or decisions that have been adopted which that legislation and regulation may address matters in recognise the equivalence of the legal and supervisory 15. ‘card-based payment transaction’ means a card- 27. ‘CTP’ means a consolidated tape provider within different ways and still achieve the same outcome: regime of a particular third country (or categories of based payment transaction within the meaning of the meaning of point (53) of Article 4(1) of Directive entities of that third country) pursuant to an existing Article 2(7) of Regulation (EU) 2015/751; 2014/65/EU; (a) there is, in a retail context, adequate equivalence regime; protection for consumers, investors, deposit 16. ‘central bank’ means a central bank within the 28. ‘data reporting services provider’ means a data holders, policy holders and/or any other persons 44. ‘financial counterparty’ means a financial meaning of point 46 of Article 4(1) of Regulation (EU) reporting services provider within the meaning of who may be owed a fiduciary or other similar counterparty within the meaning of Article 3(3) of No 575/2013; point (63) of Article 4(1) of Directive 2014/65/EU; duty; Regulation (EU) 2015/2365;

(b) there is no significant risk of increased 45. ‘financial holding company’ means a financial systemic risk in the market for financial services holding company within the meaning of point (20) of 52 In this paragraph, the term “creditor” means a creditor within the meaning of Article 3(b) of Directive 2008/48/EC.

DRAFT EQUIVALENCE REGULATION Appendix A DRAFT EQUIVALENCE in the Union. Article 4(1) of Regulation (EU) No 575/2013; 53 In this paragraph, the term “credit agreement” means a credit agreement within the meaning of Article 3(c) of Directive 2008/48/EC.

30 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 31 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

46. ‘financial instrument’ means a financial carried out by, a central securities depository; (y) operating as, or carrying out services 53. ‘insurance intermediary’ means an insurance instrument within the meaning of point (15) of Article typically carried out by, a transfer system; intermediary within the meaning of point (3) of Article 4(1) of Directive 2014/65/EU; (m) operating as, or carrying out services 2(1) of Directive (EU) 2016/97; typically carried out by, an AIFM or Non-EU (z) operating as, or carrying out services 47. ‘financial sector entity’ means a financial sector AIFM; typically carried out by, a service provider; 54. ‘insurance undertaking’ means an insurance entity within the meaning of point (27) of Article 4(1) undertaking within the meaning of Article 13(1) of of Regulation (EU) No 575/2013; (n) operating as, or carrying out services (aa) operating as, or carrying out services Directive 2009/138/EC; typically carried out by, an AIF or Non-EU AIF; typically carried out by, an electronic money 48. ‘financial services’ means services of a financial institution or an electronic money issuer; 55. ‘investment company’ means an investment nature offered by a financial service supplier of a Party (o) operating as, or carrying out services company authorised in accordance with Directive and for which a Party has made specific commitments typically carried out by, a management (bb) operating as, or carrying out services, 2009/65/EC; in its GATS Schedule, including financial markets company; including payment services, typically carried out infrastructure and insurance and insurance-related by, a payment institution or a payment service 56. ‘investment firm’ means an investment firm services. Financial services include the following (or, (p) operating as, or carrying out services provider;54 within the meaning of Article 4(1)(1) of Directive where relevant, are similar to or would correspond to typically carried out by, an investment company 2014/65/EU; the following if they were carried out entirely within or UCITs; (cc) operating as, or operating or managing a the Union): trading venue; 57. ‘investment services and activities’ means (q) operating as, or carrying out services or investment services and activities within the meaning (a) carrying out any of the activities listed in activities relating to OTC derivatives typically (dd) operating or managing a regulated market; of Article 4(1)(2) of Directive 2014/65/EU; Annex I of Directive 2013/36/EU; carried out by, a financial counterparty, non- financial counterparty which is above the (ee) operating as, or operating, a depositary that 58. ‘IOSCO’ means the International Organisation of (b) consumer credit activities and mortgage threshold set out in Article 10 of Regulation (EU) has been appointed in respect of an AIF; Securities Commissions; credit activities; 648/2012, or any other participants in the OTC derivatives markets subject to regulation under (ff) carrying out the activities typically carried 59. ‘issuer of financial instruments’ means a legal (c) insurance distribution; Regulation (EU) 648/2012; by an issuer of securities or issuers of financial entity which issues or proposes to issue financial instruments; instruments; (d) investment services and activities; (r) operating as, or carrying out services typically carried out by, a credit ratings agency; (gg) operating as, or operating, a money market 60. ‘issuer of securities’ means a legal entity which (e) operating as, or carrying out services fund; or issues or proposes to issue securities; typically carried out by an insurance or (s) operating as, or carrying out services reinsurance undertaking (including direct life typically carried out by, a management (hh) operating as, or operating, a systematic 61. ‘large financial sector entity’ means a large insurance and non-life insurance, and reinsurance company; internaliser; financial sector entity within the meaning of Article services); 142(4) of Regulation (EU) No 575/2013; (t) operating as, or carrying out services 49. ‘institution for occupational retirement provision’ (f) operating as, or carrying out services typically typically carried out by, an investment company; means an institution for occupational retirement 62. ‘life insurance’ means any of the classes of life carried out by an insurance distributor; provision as defined in Article 6(a) of Directive insurance listed in Annex II of Directive 2009/138/EC; (u) operating as, or carrying out services 2003/41/EC; (g) carrying out reinsurance distribution; typically carried out by, an institution for 63. ‘management company’ means a management occupational retirement provision; 50. ‘institution’ means an institution within the company within the meaning of point (b) of Article (h) operating as, or carrying out services meaning of Article 4(3) of Regulation (EU) No 2(1) of Directive 2009/65/EC; typically carried out by, an institution; (v) operating as, or carrying out services 575/2013; typically carried out by, an auditor, audit firm or 64. ‘manager of an ELTIF’ means a manager of (i) operating as, or carrying out services typically statutory auditor; 51. ‘insurance distribution’ means insurance an ELTIF within the meaning of Article 2(1)(12) of carried out by, a CCP; distribution within the meaning of point 1 of Article Regulation (EU) 2015/760; (w) operating as, or carrying out services 2(1) of Directive (EU) 2016/97; (j) operating as, or carrying out services typically typically carried out by, a payment services 65. ‘manager of a qualifying social entrepreneurship carried out by, an administrator of benchmarks; provider; 52. ‘insurance distributor’ means an insurance fund’ means a manager of a qualifying social distributor within the meaning of point 8 of Article entrepreneurship fund within the meaning of Article (k) operating as, or carrying out services (x) operating as, or carrying out services 2(1) of Directive 2009/138/EC; 3(1)(c) of Regulation (EU) No 346/2013; typically carried out by, a trade repository; typically carried out by, a data reporting services provider, APA, CTP or ARM); 54 In this paragraph the term “payment service provider” means a payment service provider within the meaning of Article 4(11) of Directive (EU) 2015/2366 or DRAFT EQUIVALENCE REGULATION Appendix A DRAFT EQUIVALENCE (l) operating as, or carrying out services typically Article 2(24) of Regulation (EU) 2015/751.

32 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 33 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

66. ‘manager of a qualifying venture capital fund’ 71. ‘mixed financial holding company’ means a 80. ‘participating undertaking’ means a participating 93. ‘recognition principles’ means the overarching means a manager of a qualifying venture capital fund mixed financial holding company within the meaning undertaking within the meaning of point (a) of Article principles as they have been implemented in a within the meaning of Article 3(c) of Regulation (EU) of point (21) of Article 4(1) of Regulation (EU) No 212(1) of Directive 2009/138/EC; particular mutual recognition agreement and that No 345/2013; 575/2013; have been designated as recognition principles for 81. ‘payee’ means a payee within the meaning of the purposes of this paragraph, or where no mutual 67. ‘material’ and ‘materially’ shall be interpreted 72. ‘money market fund’ means a collective Article 2(13) of Regulation (EU) 2015/751; recognition agreement is in place the overarching primarily with reference to relevant international investment undertaking to which Article 1 of principles at the recitals to this Regulation; standards, guidance, conventions and agreements, Regulation (EU) 2017/1131 is applicable; 82. ‘payer’ means a payer within the meaning of any relevant technical guidance issued by Article 2(14) of Regulation (EU) 2015/751; 94. ‘regulated market’ means a regulated market international bodies or financial services markets 73. ‘mortgage credit activities’ means operating as, within the meaning of point (21) of Article 4(1) of associations and the principles of proportionality; or carrying out services typically carried out by, a 83. ‘payment institution’ means a payment institution Directive 2014/65/EU; creditor55 or credit intermediary,56 including ancillary within the meaning of Article 4(4) of Directive (EU) 68. ‘material financial services business’ means services,57 in relation to credit agreements58 and 2015/2366; 95. ‘regulatory committee’, means the committee financial services business that is quantitatively consumers;59 that may be established under a mutual recognition material in comparison to the other economic activities 84. ‘payment service provider’ means a payment agreement, and that complies with the provisions of of an undertaking, taking into account the value 74. ‘mutual recognition agreement’ means an service provider within the meaning of Article 4(11) of Article 10; of the business, transaction volume, proportion of agreement entered into by the Union pursuant to Directive (EU) 2015/2366; clients and other relevant factors[, as specified in Article 8 of this Regulation with a third country, 96. ‘regulatory purposes’ means regulatory purposes regulatory technical standards produced by ESMA in under which the Union recognises the equivalence of 85. ‘payment service’ means a payment service within the meaning of point (g) of Article 3(1) of accordance with Article [•] or as specified in legislation the third country’s legal and supervisory regime for within the meaning of Article 4(3) of Directive (EU) Regulation (EC) No 1060/2009; or regulations adopted by the third country, as financial services to enable the provision of financial 2015/2366; applicable]/[Unless a mutual recognition agreement services in the Union by entities supervised in that 97. ‘reinsurance distribution’ means reinsurance contains specific provisions which specify a different third country, and vice versa, or for other purposes 86. ‘payment services provider’ means a payment distribution within the meaning of point (2) of Article threshold, material financial services business shall be including reducing regulatory and prudential burdens; services provider within the meaning of Regulation 2(1) of Directive (EU) 2016/97; where a third country undertaking derives more than (EU) 2015/751; [20%] of its income from business in the Union and the 75. ‘non-EU AIF’ means a non-EU AIF within the 98. ‘reinsurance intermediary’ means a reinsurance nominal value of such income derived from the Union meaning of point (aa) of Article 4(1) of Directive 87. ‘professional client’ means a professional client intermediary within the meaning of point (5) of Article is in excess of [EUR 50 million], and where a Union 2011/61/EU; within the meaning of point (10) of Article 4(1) of 2(1) of Directive (EU) 2016/97; undertaking derives more than [20%] of its income Directive 2014/65/EU; from business in the relevant third country and the 76. ‘non-EU AIFM’ means a non-EU AIFM within 99. ‘reinsurance undertaking’ means a reinsurance nominal value of such income derived from the relevant the meaning of point (ab) of Article 4(1) of Directive 88. ‘public sector entity’ means a public sector entity undertaking within the meaning of Article 13(4) of third country is in excess of [EUR 50 million]; 2011/61/EU; within the meaning of point (8) of Article 4(1) of Directive 2009/138/EC; Regulation (EU) No 575/2013; 69. ‘mediation and/or consultation process’ means 77. ‘non-life insurance’ means any of the classes 100. ‘reinsurance’ means reinsurance within the the processes indicated in Article 12 for the purposes of non-life insurance listed in Annex I of Directive 89. ‘qualifying social entrepreneurship fund’ means meaning of Article 13(7) of Directive 2009/138/EC of facilitating discussions between the Commission on 2009/138/EC; a qualifying social entrepreneurship fund within the including the activity consisting in accepting risks, behalf of the Union and the third country recognition meaning of Article 3(1)(a) of Regulation (EU) No ceded by any member of Lloyd’s, by an insurance or body on behalf of the relevant third country relating 78. ‘OTC derivatives’ means OTC derivatives within 346/2013; reinsurance undertaking other than the association of to any matters arising from a mutual recognition the meaning of Article 2(7) of Regulation (EU) No underwriters known as Lloyd’s; agreement; 648/2012; 90. ‘qualifying venture capital fund’ means a qualifying venture capital fund within the meaning of 101. ‘retail client’ means a retail client within the 70. ‘Member State of reference’ has the meaning 79. ‘parent undertaking’ means a parent undertaking Article 3(b) of Regulation (EU) No 345/2013; meaning of point (11) of Article 4(1) of Directive given to Member State of reference in point (z) of within the meaning of Article 2(9) and 22 of Directive 2014/65/EU; Article 4(1) of Directive 2011/61/EU; 2013/34/EU; 91. ‘recipient of the e-society service’ means a recipient of the service within the meaning of Article 102. ‘securities financing transaction’ or ‘SFT’ means a 2(d) of Directive 2000/31/EC; securities financing transaction within the meaning of Article 3(11) of Regulation (EU) No 2015/2365; 92. ‘recognition conditions’ means the conditions 55 In this paragraph, the term “creditor” means a creditor within the meaning of Article 4(2) of Directive (EU) 2014/17. contained in points (a) to (f) of Article 3(2) of this 103. ‘securities’ means transferable securities within 56 In this paragraph, the term “credit intermediary” means a credit intermediary within the meaning of Article 4(5) of Directive (EU) 2014/17. Regulation[, or if relevant the conditions that are the meaning of point (44) of Article 4(1) of Directive 57 In this paragraph, the term “ancillary service” means an ancillary service within the meaning of Article 4(4) of Directive (EU) 2014/17. applicable to equivalence decisions adopted under the 2014/65/EU; 58 In this paragraph, the term “credit agreement” means a credit agreement within the meaning of Article 4(3) of Directive (EU) 2014/17.

DRAFT EQUIVALENCE REGULATION Appendix A DRAFT EQUIVALENCE processes set out in an existing equivalence regime]; 59 In this paragraph, the term “consumer” means a consumer within the meaning of Article 4(1) of Directive (EU) 2014/17.

34 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 35 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

104. ‘service provider’ means a service provider within 111. ‘third-country insurance undertaking’ means the meaning of Article 2(b) of Directive 2000/31/EC; a third-country insurance undertaking within the meaning of Article 13(3) of Directive 2009/138/EC; 105. ‘statutory auditor’ means a statutory auditor within the meaning of Article 2(2) of Directive 112. ‘third-country resolution proceedings’ means third- 2006/43/EC; country resolution proceedings within the meaning of point (88) of Article 2(1) of Directive 2014/59/EU; 106. ‘subsidiary’ means a subsidiary undertaking within the meaning of Articles 2(10) and 22 of Directive 113. ‘trade repository’ means a trade repository within 2013/34/EU, including any subsidiary of a subsidiary the meaning of Article 2(2) of Regulation (EU) No undertaking of an ultimate parent undertaking; 648/2012 or a trade repository within the meaning of Article 3(1) of Regulation (EU) 2015/2365; 107. ‘supply of a financial service’ means the supply of a service through the four modes of supply set 114. ‘trading venue’ means a trading venue within the forth in paragraph 2 of Article I of the GATS; meaning of Article 4(1)(24) of Directive 2014/65/EU;

108. ‘systematic internaliser’ means a systematic 115. ‘transfer system’ means a transfer system within internaliser within the meaning of Article 4(1)(20) of the meaning of Article 2(a) of Directive 98/26/EC; Directive 2014/65/EU; 116. ‘transferable securities’ means transferable 109. ‘third country firm’ means a third country firm securities within the meaning of point (n) of Article within the meaning of point 57 of Article 4(1) of 2(1) of Directive 2009/65/EC; Directive 2014/65/EU; 117. ‘undertakings in collective investments’ or ‘UCITs’ 110. ‘third country recognition body’ means the body means UCITs within the meaning given to that term in that is designated in a mutual recognition agreement Article 1(2) of Directive 2009/65/EC. for the purposes of representing the relevant third country in all matters relating to equivalence recognition provisions; DRAFT EQUIVALENCE REGULATION Appendix A DRAFT EQUIVALENCE

36 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 37 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

ARTICLE 3 DETERMINATION OF EQUIVALENCE

01. For the purposes of the equivalence recognition (i) notifications between relevant third provisions listed in the tables in Annex I [and Annex II] country regulators, and the Commission of this Regulation, the following process shall be used (and if the Commission deems necessary, for the determination of a third country’s legal regime Union supervisory authorities); as being equivalent to that in the Union. (ii) the establishment of public registers 02. The Commission shall adopt an equivalence of the third country entities that carry out recognition by an implementing act or by including it financial services business in the Union in a mutual recognition agreement if: pursuant to any agreed equivalence recognition; and (a) the third country applies requirements which are equivalent in terms of outcome to (iii) prompt notifications to the Commission the legally binding requirements applicable (and if the Commission deems necessary, Appendix A DRAFT EQUIVALENCE REGULATION in the Union that correspond to a particular European Supervisory Authorities) by the agreed equivalence recognition set out in the relevant third country financial services table in Annex I [or Annex II], as determined by regulators where entities authorised or the Commission based on the technical advice supervised in that third country that carry received from European Supervisory Authorities out financial services business in the Union in accordance with Article 3(3); pursuant to arrangements established EXISTING pursuant to this Regulation are subject to (b) the third country applies equivalent ongoing disciplinary or infringement proceedings and effective supervision and enforcement to in the third country, are subject to a EQUIVALENCE entities that are authorised and supervised in variation, termination or suspension of that third country; authorisation to carry out any particular financial service under that third country’s (c) equivalent standards of professional secrecy legal and supervisory regime, or enter into FRAMEWORKS and data protection are in place and enforced in any insolvency, administration, receivership, that third country; resolution or any other similar event or process; and Chapter II (d) equivalent standards or requirements relating to anti-money laundering and (f) [the third country sets out reciprocal antiterrorist financing are in place and enforced recognitions that are, or will be, effective in in that third country; the third country’s legal system specifically corresponding to each agreed equivalence (e) appropriate cooperation agreements recognition [(this condition may be disapplied (including regulatory enforcement, information completely or in relation to any agreed sharing and tax information exchange and equivalence recognition, if the Commission does regulatory cooperation) are or have been entered not intend to require reciprocal recognitions into between the relevant third country’s financial from the third country in deciding to adopt a services regulators and the Commission in respect recognition decision or to conclude a mutual of each relevant sector (and, if the Commission recognition agreement)]].60 deems necessary, Union supervisory authorities) that include at the least provisions relating to:

60 NOTE: A reciprocity requirement is only needed if there is to be a two-way deal. A facility for non-reciprocal recognitions may be desirable as it provides more flexibility.

38 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 39 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

03. In assessing whether the recognition conditions national competent authorities within the Union ARTICLE 5 have been met, the Commission must consider the may coordinate with market participants in their views of, or any technical data or market evidence jurisdiction, including handling any data received from EFFECT OF EQUIVALENCE provided by, market participants, including but not market participants. limited to market participants established in the Union RECOGNITION IN THE UNION and the relevant third country, and where relevant, 04. Until such time as an equivalence recognition European Supervisory Authorities and international is made by the Commission, the Commission may bodies such as the Basel Committee on Banking implement the transitional provisions referred to in 01. Agreed equivalence recognitions shall include as having direct legal effect in accordance with Supervision, the Financial Action Task Force, the Article 15. any of the equivalence recognition provisions listed in the description contained in the column headed Financial Stability Board, the International Association the tables at Annex I to this Regulation[, and any of “Description of effect of agreed equivalence of Insurance Supervisors, the International Accounting 05. The Commission shall consider adopting an the additional equivalence recognition provisions set recognition in the Union” of the table[s] at Annex Standards Board, the International Monetary Fund and equivalence recognition by way of an implementing out in Annex II as further determined in accordance I [and Annex II] to this Regulation. However, the International Organization of Securities Commissions. act upon its own initiative or if requested by the with the provisions of Chapter III].61 Commission shall take any measures necessary, Where there are concerns regarding confidentiality, Council [or if requested by a third country]. including issuing guidance and adopting delegated 02. Agreed equivalence recognitions shall (subject or implementing regulations, to further implement to the terms of any relevant mutual recognition or clarify the effect in Union law of any agreed ARTICLE 4 agreement and without the need for further legal equivalence recognitions. OVERALL PRINCIPLES FOR implementation) be recognised under Union law

EQUIVALENCE RECOGNITION ARTICLE 6 COORDINATION BETWEEN THE UNION 01. Equivalence recognition provisions should (b) the proportionate application of equivalent be construed, and given effect in Union law, in legal, supervisory and prudential standards AND THE THIRD COUNTRY accordance with the recognition principles in the and requirements [(including, to the extent manner in which they have been incorporated in necessary, whether material financial services are this Regulation or as further specified in a mutual carried out)]. 01. The Commission shall notify any relevant third country recognition body, and any relevant regulatory recognition agreement. country financial services regulator, third country committee, in discussing the effects that a relevant 04. The Commission shall ensure that agreements recognition body, and any relevant regulatory proposed legislative development in the Union or the 02. The equivalence provisions agreed between the made between the Union and a third country committee, promptly upon becoming aware of third country may have on the recognition conditions Union and a third country (subject to any specific recognition body (including those made pursuant proposed relevant legislative developments in the continuing to be satisfied. Such cooperation shall be conditions contained in a relevant mutual recognition to a mediation and/or consultation process or Union relevant to any agreed equivalence recognitions in accordance with any procedures established by the agreement or the recognition decision) shall be given adopted by an [arbitration panel]/[judicial decision or which are relevant to whether the recognition relevant cooperation agreement, mutual recognition legal effect in Union law. procedure]), [as well as any recommendations made conditions remain satisfied. agreement or any regulatory committee. by a regulatory committee (subject to any terms 03. Equivalence recognition is based on the Union agreed between the Union and the relevant third 02. The Commission shall ensure that any relevant 04. The Commission shall cooperate with any third and each relevant third country applying, and country as to when recommendations are required third country financial services regulator or third country financial services regulator, third country continuing to apply, equivalent requirements and to be implemented)], are given legal effect in Union country recognition body commits to notifying the recognition body, and any relevant regulatory standards, taking into account: law if this has been agreed or if the Commission Commission, and any relevant regulatory committee, committee, in seeking to ensure that legislative otherwise deems necessary, and may implement any promptly upon becoming aware of proposed developments in the Union or the relevant third (a) material legal, supervisory and prudential such agreements, recommendations and decisions by legislative developments in the third country relevant country consider the incorporation of third country standards and requirements; and adopting delegated regulations. to any agreed equivalence recognitions or which are equivalence provisions in accordance with the relevant to whether the recognition conditions remain objectives of this Regulation. satisfied.

03. The Commission shall cooperate with any relevant third country financial services regulator, third

61 NOTE: It should be considered whether “filling the gaps” should be included within the Regulation, which may lead to delays or complications, or whether the additional equivalence recognition provisions proposed in Annex II should be delegated to ESMA as a technical matter, or otherwise left to further DRAFT EQUIVALENCE REGULATION Appendix A DRAFT EQUIVALENCE legislation.

40 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 41 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

ARTICLE 7 IDENTIFICATION OF ADDITIONAL EQUIVALENCE RECOGNITION PROVISIONS

01. The Commission shall be able to identify equivalence recognition provisions included in Annex additional equivalence recognition provisions in I [or Annex II] or the delegated regulations adopted addition to the existing equivalence regimes set out in under this Article as necessary where there is a Annex I, so that a third country’s regime is considered legislative development in Union law which will have equivalent to that in the Union for the purposes of a the effect of altering or repealing the underlying specified part of the relevant Union legislation. Union legislation relating to that equivalence recognition provision. 02. The Commission shall be assisted by technical advice from relevant European Supervisory Authorities 05. [The Commission has identified a number of including the European Banking Authority, the European additional equivalence provisions, which shall come Insurance and Occupational Pensions Authority, the into effect on the same date as this Regulation. The European Securities and Markets Authority. table in Annex II of this Regulation sets out the equivalence recognition provisions that have been Appendix A DRAFT EQUIVALENCE REGULATION 03. The Commission will adopt delegated regulations identified by the Commission and if included as an to identify additional equivalence recognitions, agreed equivalence provision would therefore be and will include a description of the effect of the recognised under Union law as having direct legal equivalence recognition in the Union, as well as the effect in accordance with the description contained in procedure for determining such equivalence. the column headed “Description of effect of agreed equivalence recognition in the Union” of the table at CONSOLIDATION 62 PROVISIONS 04. The Commission shall be able to amend the Annex II to this Regulation.] Chapter III

62 NOTE: Additional equivalence regimes could be included as part of the Regulation, or could be implemented by delegated legislation.

42 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 43 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

ARTICLE 8 NEGOTIATION OF MUTUAL RECOGNITION AGREEMENTS BY THE COMMISSION

01. At the request of the Council the Commission Treaty on the Functioning of the European Union. shall initiate [, or upon a request received by the Commission from a third country the Commission 04. In negotiating the provisions of mutual shall consider initiating,] negotiations relating to recognition agreements, the Commission should take mutual recognition agreements to be concluded with into account the recognition principles included in the third countries on behalf of the Union. recitals to this Regulation and shall ensure that the recognition principles are incorporated into all mutual 02. The Commission shall negotiate the provisions recognition agreements negotiated and concluded of permanent mutual recognition agreements and, between the Union and a third country. The additionally, the provisions of interim or transitional Commission may include further recognition principles mutual recognition agreements, as necessary. in a mutual recognition agreement, as negotiated with Appendix A DRAFT EQUIVALENCE REGULATION the third country. 03. Mutual recognition agreements negotiated by the Commission on behalf of the Union may be concluded 05. The terms of concluded mutual recognition by the Council making a decision to adopt the agreements shall be recognised and given legal effect MUTUAL agreement in accordance with Article 218(6) of the within the Union. ARTICLE 9 RECOGNITION CONDITIONS FOR MUTUAL AGREEMENTS RECOGNITION AGREEMENTS63 01. Mutual recognition agreements shall confirm how a procedure for the suspension of agreed equivalence Chapter IV the recognition conditions are satisfied by provisions recognitions in accordance with Article 14. of the third country’s legal and supervisory regime or how the recognition conditions may be satisfied 03. [Nothing in this Article or this Regulation subject to other arrangements or commitments set shall prohibit or restrict the finding of equivalence out in a particular mutual recognition agreement. regarding a third country under existing Union legislation in accordance with the process set 02. Mutual recognition agreements may contain any out in that relevant legislation [as amended and or all of the provisions regarding the establishment of supplemented in this Regulation].]64 a regulatory committee in accordance with Article 10, provisions establishing a mediation and/or consultation process in accordance with Article 12, provisions establishing an [arbitration/judicial decision] process in accordance with Article 13, and provisions setting out

63 NOTE: Consider whether there should be an additional condition such that equivalence can only be determined for Union markets (i.e. those contained in the EU, rather than world markets that the EU accesses) such that the EU recognises the sovereignty of UK or world markets.

64 NOTE: Not all existing equivalence decisions require all the requirements set out in Article 3. There is an option to consider whether all existing equivalence procedures are replaced under the consolidated equivalence assessment processes in this Regulation or may exist in parallel leaving an option as to whether equivalence decisions are made under the original equivalence procedure, or the consolidated process established under this Regulation.

44 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 45 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

ARTICLE 10 05. Decisions taken by the permanent members of 08. Costs of the regulatory committee shall be shared the regulatory committee shall be taken on the basis equally between the Union and the relevant third country. THE REGULATORY COMMITTEE of simple majority. In the event of a tied vote, the chairperson shall take the final binding vote. 09. The Commission is enabled to adopt delegated regulations or take other measures with legal effect in 01. Mutual recognition agreements may establish country recognition body]; 06. The regulatory committee shall act in accordance Union law to implement the recommendations of the a regulatory committee, or where appropriate, with the specific provisions and procedures regulatory committee as the Commission considers multiple regulatory committees with oversight over (c) [at its own initiative, or ]where requested by established in a mutual recognition agreement. appropriate. different types of market participants (e.g. separate the Commission or the third country recognition committees for systemically important firms, credit body, considering whether the terms of a mutual 07. The regulatory committee shall be able to request institutions, market infrastructure and investment recognition agreement, the recognition conditions specialist technical, legal or other advice if it considers firms) in accordance with the terms of this Article. or the recognition principles are not satisfied or necessary. complied with, and issuing recommendations 02. The regulatory committee will consist of a [or initiating the mediation and/or consultation chairperson and permanent members as specified process where it deems necessary]; ARTICLE 11 under the provisions of the mutual recognition agreement.65 (d) [at its own initiative, or ]where requested by SUPERVISION OF CROSS-BORDER the Commission or the third country recognition 03. Permanent members and chairpersons shall body, considering whether proposed changes or SERVICES be selected on the basis of expertise or experience reforms ought to be made to the respective legal in financial services law and regulation and in regimes of the Union or the relevant third country accordance with the relevant provisions established in in accordance with developments in international 01. The relevant national competent authority of activities of a firm authorised in a member state of a mutual recognition agreement. standards or developments in the legal regime the relevant third country will have supervisory the Union. of the Union or third country and issuing and prudential oversight over any cross-border 04. The regulatory committee shall [(subject to recommendations [where it deems necessary]; activities of a relevant third country firm. Similarly, 02. Article 11(1) above shall apply equally to any other roles concluded in the relevant mutual the relevant national competent authority of subsidiaries and branches of both relevant third recognition agreement)] have the following (e) monitoring developments in the legal member state of the Union will have supervisory country firms and firms authorised in a member state functions:66 systems of the Union and the third country, and and prudential oversight over any cross-border of the Union. [where requested] making recommendations to (a) [periodic] reviews of international the Commission or the third country recognition developments and/or standards relevant to the body, or, where a mutual recognition agreement ARTICLE 12 cross-border financial services arrangements provides for a mediation and/or consultation established under agreed equivalence process, initiating the mediation and/or MEDIATION AND CONSULTATION PROCESS recognitions[, as requested by the Commission consultation process where the regulatory or the third country recognition body]; committee believes there is a risk of breach of the terms of a mutual recognition agreement or 01. Mutual recognition agreements may establish a 03. The Commission and the third country recognition (b) consulting with the Commission, the third the recognition conditions; and mediation and/or consultation process in accordance body may agree to extend the duration of the mediation country recognition body, relevant Union with the terms of this Article.67 and/or consultation process once it has commenced. and third country supervisory authorities (f) to the extent that a mutual recognition or other relevant third parties, and issuing agreement provides for a mediation and/or 02. The mediation and/or consultation process 04. Specific procedures relating to the mediation recommendations to the Commission and consultation or [arbitration/judicial decision] shall function as a forum for cooperative discussion and/or consultation process shall be provided for in a third country recognition body regarding the process, participating in the mediation and/or between the third country (represented by the mutual recognition agreement. implementation of the terms of the relevant consultation or [arbitration/judicial decision] third country recognition body) and the Union mutual recognition agreement, and coordinating processes of a mutual recognition agreement (represented by the Commission), and, to the extent 05. The Commission is enabled to adopt delegated developments and reforms in the legal regimes pursuant to the specific procedures established that the mutual recognition agreement establishes regulations or take other measures with legal effect in Union of the Union and the relevant third country[, in a mutual recognition agreement. a regulatory committee, the regulatory committee law to implement the terms of any agreement between the as requested by the Commission or the third regarding any matter arising under a mutual Commission and the third country recognition body arising recognition agreement. out of the mediation and/or consultation process.

65 NOTE: Regulatory committees are optional and it is for the parties to consider the establishment of a committee and its role in the relevant bilateral mutual recognition agreement. 67 NOTE: It is optional whether the parties wish to establish a mediation and/or consultation process under the relevant bilateral mutual recognition

DRAFT EQUIVALENCE REGULATION Appendix A DRAFT EQUIVALENCE 66 NOTE: The regulatory committee’s functions (for example whether it may act on its own initiative) could be established in the Regulation, but might be agreement, and under what terms. Including a mediation and/or consultation process may or may not affect the risk of revocation of agreed equivalence more appropriately left to the agreement of the parties in the relevant bilateral mutual recognition agreement. recognitions.

46 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 47 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

ARTICLE 13 [ARBITRATION] / [JUDICIAL DETERMINATION] PROCESS

01. Mutual recognition agreements may establish [an 07. [The judicial determination process shall arbitration] / [a judicial determination] process.68 involve [three] judges appointed in agreement between the Union and the relevant third country. 02. The Commission or the third country recognition In the event that no agreement can be reached body may initiate the [arbitration][judicial determination] regarding any one of the judges, the other judges process by submitting a request to the relevant already chosen shall decide between them and responding party and, to the extent that the mutual confirm the remaining judge or judges.]69 In the recognition agreements establish a regulatory committee, event that no agreement can be reached regarding sending a notice to the regulatory committee. any judges, the judges shall be appointed by a [neutral third party]. 03. Where a mutual recognition agreement provides for a mediation and/or consultation process, the [arbitration] 08. Decisions made by the [arbitration panel] [judicial determination] process may only be initiated [judges] shall be made public (redacted as where a matter has not been resolved in accordance with necessary to the extent that they involve the mediation and/or consultation process. confidential information) and shall include the rationale for the decision bearing in mind the 04. [The arbitration panel shall be selected on recognition principles and the outcomes listed the basis of experience in financial services law and at points (a) and (b) of Article 2(36) of this regulation. Regulation.

05. The arbitrators shall adopt decisions by simple 09. The Commission is enabled to pass delegated majority. In the event of a tied vote, the chairperson of or implementing regulations or to take other the arbitration panel shall take the final binding vote. measures with legal effect in Union law to implement the terms of the decision of the 06. Specific procedures relating to the arbitration [arbitration panel][judicial determination] arising process shall be provided for in a mutual recognition out of the [arbitration][judicial determination] agreement.] process as it may deem necessary.

68 NOTE: If the Union and the third country wish to agree a bespoke disputes resolution process, they may do so by including it in a mutual recognition agreement. It is optional whether mutual recognition agreements should be enabled to establish an arbitration or judicial determination process, or it may be preferable for the only option to be termination of the agreed equivalence recognition(s) without an arbitration or judicial process.

69 NOTE: If a judicial process will be available, there may be issues concerning national sovereignty especially as to the relevant law to be used to determine disputes. Public scrutiny should also be considered, especially the extent to which judicial or arbitral procedures are made public, although this may increase DRAFT EQUIVALENCE REGULATION Appendix A DRAFT EQUIVALENCE uncertainty/instability.

48 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 49 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

ARTICLE 14 SUSPENSION OF MUTUAL RECOGNITION AGREEMENTS OR EQUIVALENCE RECOGNITIONS

01. Mutual recognition agreements may specify recognitions (where no mutual recognition agreement that the Commission shall be empowered to take is in place) and existing recognitions [including on action [suspending the effect of a mutual recognition a [partial, ]temporary or conditional basis] in the agreement] / [suspending the effect of agreed event of a third country’s financial services regime equivalence recognition provisions, contained in not being equivalent to the Union’s financial services a mutual recognition agreement] [including on a regime [if the overarching approach adopted by the [partial, ]temporary or conditional basis]. Agreed third country’s financial services regime means that equivalence recognitions contained in a mutual the outcomes listed at points (a) and (b) of Article recognition agreement shall continue to have effect 2(36) of this Regulation will not be achieved. Existing in Union law unless the Commission has adopted recognitions may only be suspended in accordance a delegated regulation pursuant to this Article with the provisions of this Regulation.] suspending their legal effect.70 04. Notwithstanding paragraph 2 above, the 02. The Commission may, by delegated regulations, Commission may choose to exercise its powers under take the suspensive actions referred to in Article 14(1) this Article as it deems necessary, notwithstanding Appendix A DRAFT EQUIVALENCE REGULATION in relation to the agreed equivalence recognitions whether the exercise is in accordance with the established under a mutual recognition agreement. applicable procedures specified in a mutual [The Commission should exercise its powers under this recognition agreement. Chapter V Article in accordance with the recognition principles and the terms of the mutual recognition agreement. 05. To provide legal certainty to undertakings in the Union and the relevant third country, delegated The Commission’s power to suspend the legal effect of regulations adopted by the Commission pursuant to a mutual recognition agreement in the event of a third this Article shall take effect one year after the date country’s financial services regime not being equivalent that they are published in the Official Journal. to the Union’s financial services regime may only be exercised where the overarching approach adopted by 06. Notwithstanding the adoption of a delegated the third country’s financial services regime means that regulation suspending the legal effect of agreed the outcomes listed at points (a) to (b) of Article 2(36) equivalence recognitions, the Commission shall be of this Regulation will not be achieved.]71 entitled to adopt a delegated regulation pursuant to this Article whereby part or all of the agreed equivalence 03. The Commission may by delegated regulation recognitions are deemed to continue to apply for suspend the legal effect of any agreed equivalence transitional period as determined by the Commission.

70 NOTE: Options are provided concerning the extent to which agreed equivalence recognitions may only be suspended entirely (which may mean that suspensions are less likely to be used), or whether suspensions of individual agreed recognitions should be possible and on a partial, temporary or conditional basis.

71 NOTE: Suspensions may only be justified if the third country regime is, overall, non-equivalent. This may reduce the risk of suspensions being made on the basis of the relevant third country not implementing a precise Union-specific requirement.

50 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 51 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

ARTICLE 15

01. Existing equivalence recognitions pursuant to or otherwise amend the equivalence recognition an existing equivalence regime and equivalence provisions contained in Annex I [and Annex II] or the recognitions made pursuant to this Regulation shall existing equivalence regimes contained in Annex III of continue in full force until such time as a mutual this Regulation. recognition agreement is entered into with a third country. Where a mutual recognition agreement 04. The Commission is enabled to pass delegated is entered into with a third country the mutual regulations at the request of the Council or its own recognition agreement shall contain transitional initiative as it deems necessary to determine that provisions regarding any existing recognitions all or part of a third country’s regime is considered pursuant to an existing equivalence regime already equivalent on a temporary, transitional or interim adopted in respect of that third country. basis for the purposes of any of the equivalence recognition provisions listed in the table[s] at Annex Appendix A DRAFT EQUIVALENCE REGULATION 02. The Commission is enabled to pass delegated I [and Annex II]. The temporary, transitional or regulations or take other measures with legal effect interim period shall last for a period as determined in Union law to further implement or clarify the legal by the Commission in the relevant delegated effect that any existing recognitions are intended to regulations. have pursuant to the transitional provisions contained EXISTING, in a mutual recognition agreement. 05. Mutual recognition agreements may provide for the terms under which the Union and the 03. The Commission is enabled to pass delegated third country may supplement an existing mutual regulations at the request of the Council or its own recognition agreement with additional agreed ADDITIONAL AND initiative as it deems necessary to supplement equivalence provisions. TRANSITIONAL EQUIVALENCE PROVISIONS Chapter VI

52 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 53 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

ARTICLE 16 EXERCISE OF DELEGATED POWERS

01. The power to adopt delegated or implementing and the publication of the decision in the Official acts as referred to in Articles 3(2), 4(4), 5(2), 7(3), Journal of the European Union. It shall not affect the 7(4), 10(9), 12(5), 13(9), 14, 15(2), 15(3), and 15(4) validity of any delegated acts already in force. is conferred on the Commission subject to the conditions laid down in this Article. 04. As soon as it adopts a delegated act, the Commission shall simultaneously notify the European 02. The power to adopt delegated or implementing Parliament and the Council. acts referred to in point 1 of this article shall be indefinitely conferred on the Commission from [•]. 05. A delegated or implementing act referred to in point 1 of this Article shall enter into force only if no 03. The delegation of power referred to in Articles objection has been expressed either by the European 3(2), 4(4), 5(2), 7(3), 7(4), 10(9), 12(5), 13(9), 14, 15(2), Parliament or the Council within a period of two 15(3), and 15(4) may be revoked by the European months of notification of that act to the European Parliament or by the Council. A decision to revoke shall Parliament and the Council or if, before the expiry of put an end to the delegation of power specific in the that period, the European Parliament and the Council decision. It shall take effect within 60 days following have both informed the Commission that they will not notification by the Commission to the relevant third object. That period shall be extended by two months Appendix A DRAFT EQUIVALENCE REGULATION country recognition body corresponding to the mutual at the initiative of the European Parliament or of the recognition agreement that is affected by the decision Council. FINAL PROVISIONS ARTICLE 17 01. This regulation shall come into effect [•]. Chapter VII

54 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 55 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

RELEVANT UNION DESCRIPTION OF EFFECT OF AGREED ADDITIONAL LEGISLATION EQUIVALENCE RECOGNITION IN THE UNION EQUIVALENCE CRITERIA

1. Directive 2003/71/EC (a) Prospectuses of issuers having their registered office in the relevant (i) The third country’s legal or third country that have been drawn up in accordance with national supervisory regime, procedures [Prospectus Directive law or practices or procedures in that third country (as described in or practices ensure that the – Equivalence of a particular recognition decision or mutual recognition agreement third country prospectuses prospectuses – Art. and subject to any specific conditions) shall be treated in Union law referred to in point (a) are drawn 20(3)]1 as third country prospectuses drawn up in accordance with national up in an equivalent manner law, practices or procedures of a third country in respect of which to international standards set the Commission has adopted an implementing measure, as referred up by international securities to in Article 20(3) of Directive 2003/71/EC, stating that the relevant commission organisations, third country ensures the equivalence of prospectuses drawn up in including the IOSCO disclosure that country with Directive 2003/71/EC by reason of its national law standards. or of practices or procedures based on international standards set by international organisations, including the IOSCO disclosure standards (as described in a particular recognition decision or mutual recognition agreement and subject to any specific conditions).

2. Directive 2003/71/EC (a) The generally accepted accounting standards of the relevant (i) The third country ensures third country that have been applied to historic financial information that the accounting standards [Prospectus Directive prepared by third country issuers (as described in a particular applicable to the historical – 3rd country GAAP recognition decision or mutual recognition agreement and subject to financial information prepared with IFRS: Art. any specific conditions) shall be treated in Union law as accounting by issuers in that third country 35 Regulation standards in respect of which the Commission has adopted a referred to in point (a) are 809/2004] delegated act, as referred to in Article 7(1) of Directive 2003/71/EC equivalent to the requirements and in accordance with Commission Regulation (EC) No 1569/2007, applicable to financial statements determining the equivalence of the generally accepted accounting referred to in Article 2 of principles of that third country with IFRS adopted pursuant to Commission Regulation (EC) No Regulation 1606/2002, with the effect that such third country 1569/2007. issuers shall be able to present their historical financial information Appendix A DRAFT EQUIVALENCE REGULATION in accordance with the relevant third country’s generally accepted accounting standards (as described in a particular recognition decision or mutual recognition agreement and subject to any specific conditions). Annex I 3. Directive 2004/109/ (a) Generally accepted accounting standards of the relevant third (i) The third country ensures EC; Regulation (EC) country used by issuers whose registered head office is situated in that the accounting standards No 1569/2007 that third country (as described in a particular recognition decision applicable to the third country or mutual recognition agreement and subject to any specific entities referred to in point (a) [Transparency conditions) shall be treated in Union law as accounting standards in meet the requirements of Article Directive: 3rd country respect of which the Commission has taken the necessary decisions, 2 of Commission Regulation (EC) GAAP with IFRS, Art. as referred to in the third paragraph of Article 23(4) of Directive No 1569/2007 in all equivalent 23(4), Sub-para 3] 2004/109/EC, and adopted implementing measures, as referred to respects. in Article 23(4) of Directive 2004/109/EC in accordance with the equivalence mechanism established by Commission Regulation (EC) No 1569/2007, stating that by reason of the domestic law, regulations, administrative provisions, or of the practices or procedures based on the international standards set by international organisations, the third country where the issuer is situated ensures the equivalence of information requirements provided for in Directive 2004/109/EC, as referred to in Article 23(4)(ii) of Directive 2004/109/EC (as described in a particular recognition decision or mutual recognition agreement and subject to any specific conditions).

4. Directive 2004/109/ (a) Information requirements of the relevant third country which are (i) The third country information EC applicable to issuers whose registered head office is situated in that requirements applicable to issuers third country (as described in a particular recognition decision or with their registered head office [General transparency mutual recognition agreement and subject to any specific conditions) in that third country as referred requirements] shall be treated in Union law as requirements in respect of which to in point (a) applicable to the Commission has adopted implementing measures, as referred issuers in that third country are to in Article 23(4) of Directive 2004/109/EC, stating that, by reason equivalent to the international of the domestic law, regulations, administrative provisions, or of the standards set by international practices or procedures based on the international standards set organisations which correspond by international organisations, the third country where the issuer is to the information requirements situated ensures the equivalence of the information requirements provided by Directive 2004/109/ provided for in Directive 2004/109/EC (as described in a particular EC. recognition decision or mutual recognition agreement and subject to any specific conditions).

56 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 57 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

RELEVANT UNION DESCRIPTION OF EFFECT OF AGREED ADDITIONAL RELEVANT UNION DESCRIPTION OF EFFECT OF AGREED ADDITIONAL LEGISLATION EQUIVALENCE RECOGNITION IN THE UNION EQUIVALENCE CRITERIA LEGISLATION EQUIVALENCE RECOGNITION IN THE UNION EQUIVALENCE CRITERIA

5. Directive 2013/34/EU (a) Third-country reporting requirements applicable to the (i) The legal and/or supervisory 8. Directive 2006/43/EC (a) Entities supervised in the relevant third country (as described in a (i) The third country’s legal and/ undertakings referred to in Article 42 and 44 of Directive 2013/34/ regime, practices or procedures particular recognition decision or mutual recognition agreement and or supervisory regime applies to [Country by country EU (as described in a particular recognition decision or mutual of the third country ensure that [Statutory Audit: subject to any specific conditions) and authorised as, or to operate, an the third country entities referred reporting] recognition agreement and subject to any specific conditions) shall the third country reporting Equivalence of audit auditor or an audit entity shall be treated in Union law as third-country to in point (a) systems of public be treated in Union law as reporting requirements in respect of which requirements referred to in framework: Art. auditors or audit entities subject to systems in that third country in oversight, quality assurance and the Commission has adopted an implementing act, as referred to in point (a) are equivalent to the 46(2)] respect of which the Commission has adopted an implementing act, as investigations and penalties Article 47 of Directive 2013/34/EU, identifying such requirements, requirements of Chapter 10 of referred to in Article 46(2), recognising the equivalence of the auditors equivalent to the requirements of after applying the equivalence criteria identified in accordance with Directive 2013/34/EU, applying and audit entities in that third country which are subject to systems of Articles 29, 30 and 32 of Directive Article 46 of Directive 2013/34/EU, as equivalent to the requirements the equivalence criteria identified public oversight, quality assurance and investigations and penalties in 2006/43/EC. of Chapter 10 of Directive 2013/34/EU (as described in a particular in accordance with Article 46 of that third country that are equivalent to those of Articles 29, 30 and recognition decision or mutual recognition agreement and subject to Directive 2013/34/EU. 32 of Directive 2006/43/EC (as described in a particular recognition any specific conditions). decision or mutual recognition agreement and subject to any specific conditions). 6. Regulation (EC) No (a) Credit ratings related to entities established, or financial (i) The third country’s legal and/or 1060/2009 instruments issued, in the relevant third country that are issued by supervisory regime ensures that 9. Regulation (EU) No (a) Entities established in the relevant third country and operating entities supervised in the relevant third country (as described in a the third country entities referred 648/2012 as a central bank or public body charged with or intervening in the [Credit Rating particular recognition decision or mutual recognition agreement and to in point (a) are subject to management of the public debt in that third country (as described in Agencies: subject to any specific conditions) by entities authorised as, or to binding rules equivalent to those [EMIR: central bank a particular recognition decision or mutual recognition agreement and Equivalence: Art. operate, a credit rating agency shall be treated in Union law as subject set out in Articles 6 to 12 and exemption: Art. 1(6)] subject to any specific conditions) shall be treated in Union law as third 5(6)] to a legal and supervisory framework of a third country in respect Annex I of Regulation (EC) No country entities with respect to which the Commission has adopted of which the Commission has adopted an equivalence decision, 1060/2009, with the exception a delegated act pursuant to paragraph 6 of Article 1 of Regulation as referred to in Article 5(6) of Regulation (EC) No 1060/2009, of Articles 6a, 6b, 8a, 8b, 8c and (EU) No 648/2012, with the effect that the list set out in paragraph stating that the legal and supervisory framework of the relevant 11a, point (ba) of point 3 and 4 of Article 1 of Regulation (EU) No 648/2012 shall be amended third country meets the requirements listed in Article 5(6)(a) to points 3a and 3b of Section B of accordingly (as described in a particular recognition decision or 5(6)(c) of Regulation (EC) No 1060/2009, with the effect that such Annex I of Regulation (EC) No mutual recognition agreement and subject to any specific conditions). third country entities may apply for certification pursuant to Article 1060/2009. 5(2) of Regulation (EC) No 1060/2009 (as described in a particular 10. Regulation (EU) No (a) Entities supervised in the relevant third country (as described in a (i) The third country’s legal and/or recognition decision or mutual recognition agreement and subject to (ii) The third country regulatory 648/2012 particular recognition decision or mutual recognition agreement and supervisory regime applies to the any specific conditions). regime applicable to the third subject to any specific conditions) and authorised as, or to operate, third-country entities referred to country entities referred to in [EMIR: regulated a regulated market shall be treated in Union law as third- country in point (a) binding requirements point (a) prevents interference by markets: Art. 2a] markets subject to legally binding requirements in respect of which which are equivalent to the the supervisory authorities and the Commission has adopted an implementing act, as referred to in requirements laid down in Title III other public authorities of that Article 2a of Regulation (EU) No 648/2012, determining that such of Directive 2004/39/EC. third country with the content of requirements are equivalent to the requirements laid down in Title III credit ratings and methodologies. of Directive 2004/39/EC and such third country entities are subject to effective supervision and enforcement in that third country on an (iii) A cooperation agreement ongoing basis (as described in a particular recognition decision or is in place or will be put into mutual recognition agreement and subject to any specific conditions). place between the relevant third country and ESMA specifying 11. Regulation (EU) No (a) Requirements of the third country’s legal, supervisory and/or (i) The third country’s legal, at least the matters referred 648/2012 enforcement regime corresponding to any of the requirements laid supervisory and/or supervisory to in Article 5(7)(a) and (b) of down in Articles 4, 9, 10 and 11 of Regulation (EU) No 648/2012 (as regime applies requirements Regulation (EC) No 1060/2009. [EMIR: transaction described in a particular recognition decision or mutual recognition which are equivalent to any of requirements: Art. agreement and subject to any specific conditions) shall be treated those laid down in Articles 4, 9, 7. Directive 2006/43/EC (a) The relevant competent authorities of the third country (as (i) The third country’s legal and/ in Union law as legal, supervisory and enforcement arrangements in 10 and 11 of Regulation (EU) No described in a particular recognition decision or mutual recognition or supervisory regime applies 13] respect of which the Commission has adopted an implementing act as 648/2012. [Statutory Audit: agreement and subject to any specific conditions) shall be treated to the third-country competent referred to in Article 13(2) of Regulation (EU) No 648/2012 declaring Adequacy of audit in Union law as competent authorities in respect of which the authorities referred to in point that the requirements set out in Article 13(2) have been met, with (ii) The third country framework: Art. Commission has adopted a delegated act, as referred to in Article (a) requirements which are the effect that counterparties entering into a transaction subject to requirements referred to in point 47(3)] 47(3) of Directive 2006/43/EC, declaring that such third-country either equivalent to the general Regulation (EU) No 648/2012 shall be deemed to have fulfilled the (i) are effectively applied and competent authorities meet requirements that have been declared adequacy criteria adopted obligations contained in Articles 4, 9, 10 and 11 of Regulation (EU) No enforced in an equitable and non- adequate and such competent authorities are recognised as adequate pursuant to Article 47(3) of 648/2012 where at least one of the counterparties is established in distortive manner so as to ensure to cooperate with the competent authorities of Member States for Directive 2006/43/EC based on that third country, as referred to in Article 13(3) of Regulation (EU) No equivalent effective supervision the exchange of audit working papers or other documents held the requirements of Article 36 of 648/2012 (as described in a particular recognition decision or mutual and enforcement in that third by statutory auditors and audit firms (as described in a particular Directive 2006/43/EC or which recognition agreement and subject to any specific conditions). country. recognition decision or mutual recognition agreement and subject to ensure equivalent functional any specific conditions) . results relating to a direct exchange of audit working papers or other documents held by statutory auditors or audit firms. DRAFT EQUIVALENCE REGULATION Appendix A DRAFT EQUIVALENCE

58 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 59 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

RELEVANT UNION DESCRIPTION OF EFFECT OF AGREED ADDITIONAL RELEVANT UNION DESCRIPTION OF EFFECT OF AGREED ADDITIONAL LEGISLATION EQUIVALENCE RECOGNITION IN THE UNION EQUIVALENCE CRITERIA LEGISLATION EQUIVALENCE RECOGNITION IN THE UNION EQUIVALENCE CRITERIA

12. Regulation (EU) No (a) Entities supervised in the relevant third country (as described in a (i) The third country’s legal and/or 14. Regulation (EU) No (a) Entities supervised in a third country (as described in a particular (i) The third country’s legal and/ 648/2012 particular recognition decision or mutual recognition agreement and supervisory regime applies to the 909/2014 recognition decision or mutual recognition agreement and subject or supervisory regime applies to subject to any specific conditions) and authorised as, or operating third country entities referred to in to any specific conditions) and authorised as, or operating, a central the third country entities referred [EMIR: CCPs: Art. as, a CCP shall be treated in Union law as being subject to legal point (a) requirements which are [CSDR: Art. 25(9)] securities depository shall be treated in Union law as being subject to in point (a) requirements which 25(6)] and supervisory arrangements in respect of which the Commission equivalent to the requirements to legal and supervisory arrangements in respect of which the ensure that the third country has adopted an implementing act, as referred to in Article 25(6) of laid down in Title IV of Regulation Commission has adopted an implementing act, as referred to in entities referred to in point (a) are Regulation (EU) No 648/2012, determining that legal and supervisory (EU) No 648/2012. Article 25(9) of Regulation (EU) No 909/2014 (notwithstanding the subject to effective authorisation, arrangements in that third country ensure that a CCP authorised in effect of Article 69(3) of Regulation (EU) No 909/2014), determining supervision and oversight or, that third country comply with legally binding requirements which are (ii) An appropriate cooperation that the legal and supervisory arrangements of the third country if the securities settlement equivalent to those requirements laid down in Title IV of Regulation mechanism is established or ensure that CSDs authorised in that third country comply with legally system is operated by a central (EU) No 648/2012, that they are subject to effective supervision will be established between the binding requirements equivalent to the requirements laid down in bank, oversight, ensuring full and enforcement in that third country on an ongoing basis, and that relevant competent authorities Regulation (EU) No 909/2014, that CSDs are subject to effective compliance with the prudential the legal framework of that third country provides for an effective of the third country and ESMA supervision, oversight and enforcement in that third country on an requirements applicable in that equivalent system for the recognition of CCPs authorised under third- which specifies, at least, the ongoing basis and that the legal framework of that third country third country. country legal regimes, with the effect that such third country entities matters referred to in Article 7(a) provides for an effective equivalent system for the recognition of are able to apply to ESMA for recognition to provide certain clearing to 7(d) of Regulation (EU) No CSDs authorised under third-country legal regimes, with the effect (ii) The third country’s legal services or activities in the Union, as referred to in Article 25(2) and 648/2012. that (notwithstanding the effect of Article 69(3) of Regulation (EU) and/or supervisory regime 25(4) of Regulation (EU) No 648/2012 (as described in a particular No 909/2014) such third country entities able to apply to ESMA ensures that the third country recognition decision or mutual recognition agreement and subject to for recognition as referred to in Article 25(2) of Regulation (EU) No entities referred to in point(a) any specific conditions). 909/2014, and be recognised as able to provide the services (including comply with requirements by establishing a branch in a Member State) referred to in Article which are in effect equivalent 13. Regulation (EU) No (a) Entities supervised in the relevant third country (as described in a (i) The third country’s legal or 25(2) of Regulation (EU) No 909/2014 (as described in a particular to the requirements laid 648/2012 particular recognition decision or mutual recognition agreement and supervisory regime applies to the recognition decision or mutual recognition agreement and subject to down in Regulation (EU) No subject to any specific conditions) and authorised as, or operating, a third country entities referred to in any specific conditions). 909/2014, taking into account [EMIR: trade trade repository shall be treated in Union law as being subject to legal point (a) equivalent requirements the internationally agreed CPSS- repositories: Art. 75] and supervisory arrangements in respect of which the Commission as those laid down in Regulation IOSCO standards so far as they do has adopted an implementing act, as referred to in Article 75(1) (EU) No 648/2012. not conflict with Regulation (EU) of Regulation (EU) No 648/2012, determining that the legal and No 909/2014. supervisory arrangements of the third country meet the conditions (ii) A cooperation agreement is (iii) The third country’s legal or at Articles 75(1)(a) to 75(1)(c), with the effect that such third country in place or will be put in place supervisory regime provides for entities may apply for recognition by the Commission, as referred to in between the Union and the an effective equivalent system Articles 77(1) and 77(2) of Regulation (EU) 2015/2365 (as described in relevant third country authorities for the recognition of CSDs a particular recognition decision or mutual recognition agreement and providing for the access described authorised under third-country subject to any specific conditions). in Article 75(2) of Regulation(EU) No 648/2012, and specifying, legal regimes. at least the matters listed in (iv) The third country entities Article 75(3)(a) and 75(3)(b) of referred to in point (a) are Regulation (EU) No 648/2012. permitted under the legal regime of the third country, if necessary, to take the necessary measures to allow their users to comply with the relevant national law of any Member State in which the third country entity may operate to provide central securities depository services, including the law referred to in the second subparagraph of Article 49(1) of Regulation (EU) No 909/2014. (v) A cooperation agreement is in place or will be put in place with the responsible third- country authorities meeting the requirements, at least, of Article 25(7) and Article 25(10) of Regulation (EU) No 909/2014.

15. Regulation (EU) (a) Entities established in the relevant third country and operating 2015/2365 as a central bank or public body charged with or intervening in the management of public debt in that third country (as described in a [SFTR: central banks: particular recognition decision or mutual recognition agreement and Art. 2(4)] subject to any specific conditions) shall be treated in Union law as third country entities with respect to which the Commission has adopted a delegated act pursuant to paragraph 4 of Article 2 of Regulation (EU) 2015/2365, with the effect that the list set out in paragraph 2 of Article 2 of Regulation (EU) 2015/2365 shall be amended accordingly (as described in a particular recognition decision or mutual recognition agreement and subject to any specific conditions). DRAFT EQUIVALENCE REGULATION Appendix A DRAFT EQUIVALENCE

60 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 61 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

RELEVANT UNION DESCRIPTION OF EFFECT OF AGREED ADDITIONAL RELEVANT UNION DESCRIPTION OF EFFECT OF AGREED ADDITIONAL LEGISLATION EQUIVALENCE RECOGNITION IN THE UNION EQUIVALENCE CRITERIA LEGISLATION EQUIVALENCE RECOGNITION IN THE UNION EQUIVALENCE CRITERIA

16. Regulation (EU) (a) Entities supervised in the relevant third country (as described in a (i) The third country’s legal or 18. Regulation (EU) (a) Entities authorised in the relevant third country (as described in a (i) The third country entities 2015/2365 particular recognition decision or mutual recognition agreement and supervisory regime applies to the 2016/1011 particular recognition decision or mutual recognition agreement and referred to in point (a) are subject to any specific conditions) and authorised as, or operating, a third country entities referred to in subject to any specific conditions) and authorised as, or operating, subject to a legal framework [SFTR: trade trade repository shall be treated in Union law as being subject to legal point (a)equivalent requirements [Benchmarks: a benchmark administrator in the third country shall be treated in and supervisory practice which repositories: Art. 19] and supervisory arrangements in respect of which the Commission as those laid down in Regulation Requirements Union law as entities and benchmarks subject to a third country’s ensures compliance with the has adopted an implementing act, as referred to in Article 19(1) of (EU) 2015/2365. for benchmark legal framework and supervisory practice in respect of which the IOSCO principles for financial Regulation (EU) 2015/2365, determining that the legal and supervisory Commission has adopted an implementing decision, as referred to benchmarks, or where applicable, (ii) The third country’s legal or administrators: Art. arrangements of the third country meet the conditions at Articles 19(1) 30(2)] in Article 30(2) of Regulation (EU) 2016/1011, stating that the legal with the IOSCO principles for (a) to (d), with the effect that such third country entities may apply to supervisory regime applies to the framework and supervisory practice of that third country meets the PRAs. the Commission for recognition as a trade repository, as referred to in third country entities referred to requirements listed in Article 30(2)(a) and (b) of Regulation (EU) Articles 19(3) and 19(4) of Regulation (EU) 2015/2365 (as described in in point (a) legally binding and 2016/1011 (as described in a particular recognition decision or mutual (ii) A cooperation agreement is a particular recognition decision or mutual recognition agreement and enforceable obligations under the recognition agreement and subject to any specific conditions). in place or will be put in place subject to any specific conditions). legal regime of the third country with the relevant third country to give direct and immediate competent authorities specifying access to trade repository data at least the matters listed in to the entities referred to in Article 30(4)(a) to 30(4)(c) of Article 12(2) of Regulation (EU) Regulation (EU) 2016/1011. 2015/2365. 19. Regulation (EU) (a) Specific entities authorised as, or to operate, a benchmark (i) The specific third country (iii) The relevant recognition 2016/1011 administrator or benchmarks or families of benchmarks (as described entities, benchmarks or families decision or mutual recognition in a particular recognition decision or mutual recognition agreement of benchmarks referred agreement specified the relevant [Benchmarks: and subject to any specific conditions) that are subject to specific to in point (i) are subject third-country authorities that Requirements binding requirements in the relevant third country shall be treated in to a legal framework and are entitled to access data on for benchmark Union law as specific administrators or specific benchmarks or families supervisory practice which SFTs held in trade repositories administrators: Art. of benchmarks subject to binding requirements in that third country ensures compliance with the established in the Union. 30(3)] in respect of which the Commission has adopted an implementing IOSCO principles for financial decision, as referred to in Article 30(3) of Regulation (EU) 2016/1011, benchmarks or, where applicable, (iv) Cooperation arrangements stating that the binding requirements in that third country meet the with the IOSCO principles for are in place or will be put in requirements of Article 30(3)(a) of Regulation (EU) 2016/1011 and PRAs. place between the Union and the that such specific administrators or specific benchmarks or families relevant third country authorities of benchmarks are subject to supervision and enforcement meeting (ii) A cooperation agreement is specifying, at least the matters the requirements of Article 30(3)(b) of Regulation (EU) 2016/1011 (as in place or will be put in place listed at Article 19(5)(b)(i) and described in a particular recognition decision or mutual recognition with the relevant third country 19(5)(b)(ii) of Regulation (EU) agreement and subject to any specific conditions). competent authorities specifying 2015/2365. at least the matters listed in Article 30(4)(a) to 30(4)(c) of 17. Regulation (EU) (a) The legal, supervisory and/or enforcement arrangements of the (i) The legal, supervisory and/ Regulation (EU) 2016/1011. 2015/2365 relevant third country corresponding to the requirements laid down or enforcement arrangements in Article 4 of Regulation (EU) 2015/2365 (as described in a particular of the third country referred to 20. Regulation (EU) No (a) Entities supervised in the relevant third county (as described in a (i) The third country’s legal and/ [SFTR: transaction recognition decision or mutual recognition agreement and subject to in point (a) are equivalent to the 236/2012 particular recognition decision or mutual recognition agreement and or supervisory regime applies to requirements: Art. any specific conditions) shall be treated in Union law as arrangements requirements laid down in Article subject to any specific conditions) and authorised as, or operating, the entities referred to in point (a) 21] in respect of which the Commission has adopted an implementing 4 of Regulation (EU) 2015/2365. [Short selling: market a market, shall be treated in Union law as subject to legally binding equivalent requirements which act, as referred to in Article 21(1) of Regulation (EU) 2015/2365, requirements in respect of which the Commission has adopted a ensure that the third country (ii) The legal, supervisory and/ makers: Art. 17(2)] determining that the legal, supervisory and/or enforcement decision, as referred to in Article 17(2) of Regulation (EU) 236/2012, entities referred to in point (a) or enforcement arrangements arrangements of that third country satisfy the requirements set determining that the legal and supervisory framework of the third have clear and transparent of the third country referred out in Article 21(1)(a) to (b) of Regulation (EU) 2015/2365, with the country, for the purposes of the exemption set out in Article 17(1) of rules regarding the admission to in point (a) ensure that the effect that where counterparties enter into a transaction subject to Regulation (EU) No 236/2012, is equivalent to the requirements under of securities to trading so that entities referred to in Article 12(2) Regulation (EU) 2015/2365 and at least one of the counterparties is Title III of Directive 2004/39/EC, under Directive 2003/6/EC and such securities are capable of of Regulation (EU) 2015/2365 established in the relevant third country and the counterparties have under Directive 2004/109/EC (as described in a particular recognition being traded in a fair, orderly and have either direct access to the complied with the obligations of that third country in relation to that decision or mutual recognition agreement and subject to any specific efficient manner, and are freely details on securities financing transaction, the counterparties to the transaction shall be deemed to conditions). negotiable. have fulfilled the requirements laid down in Article 4 of Regulation transactions data pursuant to (EU) 2015/2365, as referred to in Article 21(2) of Regulation (EU) Article 19(1) of Regulation (EU) (ii) The third country’s legal and/ 2015/2365 (as described in a particular recognition decision or mutual 2015/2365 or indirect access to or supervisory regime applies to recognition agreement and subject to any specific conditions). the details on securities financing the entities referred to in point (a) transactions pursuant to Article equivalent requirements which 20 of Regulation (EU) 2015/2365. ensure a high level of investor protection by subjecting security issuers to periodic and ongoing information requirements. (iii) The third country’s legal regime applies to the entities referred to in point (a) equivalent requirements which ensure market transparency and integrity by preventing market abuse in the form of insider dealing and market manipulation. DRAFT EQUIVALENCE REGULATION Appendix A DRAFT EQUIVALENCE

62 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 63 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

RELEVANT UNION DESCRIPTION OF EFFECT OF AGREED ADDITIONAL RELEVANT UNION DESCRIPTION OF EFFECT OF AGREED ADDITIONAL LEGISLATION EQUIVALENCE RECOGNITION IN THE UNION EQUIVALENCE CRITERIA LEGISLATION EQUIVALENCE RECOGNITION IN THE UNION EQUIVALENCE CRITERIA

21. Regulation (EU) No (a) Public bodies and/or central banks established in the relevant third 25. Directive 2014/65/ (a) Entities supervised in the relevant third country (as described in a (i) The third country’s legal and/ 596/2014 country (as described in a particular recognition decision or mutual EU, Regulation (EU) particular recognition decision or mutual recognition agreement and or supervisory regime provides recognition agreement and subject to any specific conditions) shall No 600/2014 subject to any specific conditions) and authorised as, or to operate, for an effective equivalent system [MAR: Exemption for be treated in Union law as third country public bodies and central a trading venue shall be treated in Union law as being subject to for the recognition of trading monetary and public banks in respect of which the Commission has adopted a delegated [MiFIR: Trading legally binding requirements in respect of which the Commission has venues authorised under Directive debt management act, as referred to in Article 6(5) of Regulation (EU) No 596/2014, with venues trading adopted a decision, as referred to in Article 28(4) of Regulation (EU) 2014/65/EU to admit to trading or activities: Art. 6(5)] the effect that the exemption referred to in Article 6(1) of Regulation obligation: financial 600/2014, determining that those requirements are equivalent to the trade derivatives declared subject (EU) 596/2014 is extended to those third country public bodies and/ instruments: Art. requirements for the trading venues referred to in paragraph 1(a), (b) to a trading obligation in that or central banks (as described in a particular recognition decision or 28(4) MiFIR] or (c) of Article 28(4) of Regulation (EU) 600/2014, resulting from third country on a non-exclusive mutual recognition agreement and subject to any specific conditions). Regulation (EU) 600/2014, Directive 2014/65/EU, and Regulation (EU) basis. No 596/2014, and such third country entities are subject to effective 22. Regulation (EU) No (a) Public bodies established in the relevant third country (as (i) The third country has supervision and enforcement in the third country (as described in a (ii) The third country’s legal and/ 596/2014 described in a particular recognition decision or mutual recognition entered into or will enter into particular recognition decision or mutual recognition agreement and or supervisory regime applies agreement and subject to any specific conditions) shall be treated an agreement with the Union subject to any specific conditions). to the third country entities [MAR: Climate in Union law as third country public bodies in respect of which the pursuant to Article 25 of Directive referred to in point (a) equivalent policy/emissions: Art. Commission has adopted a delegated act, as referred to in Article 6(6) 2003/87/EC. standards which ensure that 6(6)] of Regulation (EU) No 596/2014, with the effect that the exemption such entities have clear and referred to in Article 6(3) of Regulation (EU) No 596/2014 is extended transparent rules regarding the to such third country public bodies (as described in a particular admission of financial instruments recognition decision or mutual recognition agreement and subject to to trading so that such financial any specific conditions). instruments are capable of being traded in a fair, orderly and 23. Regulation (EU) No (a) Entities established in the relevant third country and operating efficient manner, and are freely 600/2014 as a central bank in that third country (as described in a particular negotiable. recognition decision or mutual recognition agreement and subject [MiFIR: Central to any specific conditions) shall be treated in Union law as third (iii) The third country’s legal and/ banks: Art. 1(9)] country entities with respect to which the Commission has adopted or supervisory regime applies to a delegated act to extend the scope of paragraph 6 of Article 1 of the entities referred to in point (a) Regulation (EU) No 600/2014, as referred to in paragraph 9 of Article equivalent requirements which 1 of Regulation (EU) No 600/2014, with the effect that the scope of ensure that issuers of financial paragraph 6 of Article 1 of Regulation (EU) No 600/2014 shall be instruments are subject to extended accordingly to such entities (as described in a particular periodic and ongoing information recognition decision or mutual recognition agreement and subject to requirements ensuring a high any specific conditions). level of investor protection. (iv) The third country’s legal or 24. (a) Entities supervised in the relevant third country (as described in a (i) The third country’s legal and/or Directive 2014/65/ supervisory regime applies to the particular recognition decision or mutual recognition agreement and supervisory regime applies to the EU, Regulation (EU) entities referred to in point (a) subject to any specific conditions) and authorised as, or to operate, a third country entities referred to No 600/2014 equivalent requirements which regulated market shall be treated in Union law as being subject to a in point (a) equivalent standards ensure market transparency [MiFIR/MiFID: legal and supervisory framework of a third country in respect of which which ensure that such entities and integrity by the prevention the Commission has adopted an equivalence decision as referred to have clear and transparent Trading venues of market abuse in the form in the third and fourth subparagraphs of Article 25(4)(a) of Directive rules regarding the admission trading obligation: of insider dealing and market 2014/65/EU stating that a regulated market in that third country of securities to trading so that financial instruments: manipulation. Art. 23 MiFIR/25(4) complies with legally binding requirements which are equivalent to such securities are capable of the requirements resulting from Regulation (EU) No 596/2014, from being traded in a fair, orderly and (a) MiFID] 26. Regulation (EU) No (a) Certain requirements of the third country’s legal or supervisory (i) The third country’s legal and/or Title III of Directive 2014/65/EU, from Title II of Regulation (EU) No efficient manner, and are freely 600/2014 regime corresponding to the requirements laid down in Articles 28 supervisory regime requirements 600/2014 and from Directive 2004/109/EC, and regulated markets in negotiable. and 29 of Regulation (EU) No 600/2014 (as described in a particular referred to in point (a) are that third country are subject to effective supervision and enforcement [MiFID/MiFIR: (ii) The third country’s legal and/ recognition decision or mutual recognition agreement and subject equivalent to those laid down in (as described in a particular recognition decision or mutual recognition derivatives: trade to any specific conditions) shall be treated in Union law as legal, Articles 28 and 29 of Regulation agreement and subject to any specific conditions). or supervisory regime applies to the entities referred to in point (a) execution and supervisory and enforcement arrangements in respect of which (EU) No 600/2014. the Commission has adopted an implementing act, as referred to in equivalent requirements which clearing obligations: (ii) The third country ensure that security issuers are Art. 33] Article 33(2) of Regulation (EU) No 600/2014, with the effect that counterparties entering into a transaction subject to Regulation requirements referred to in point subject to periodic and ongoing (a) are effectively applied and information requirements (EU) No 600/2014 shall be deemed to have fulfilled the obligations contained in Articles 28 and 29 of Regulation (EU) No 600/2014 enforced in an equitable and non- ensuring a high level of investor distortive manner so as to ensure protection. where at least one of the counterparties is established in that third country, and the counterparties are in compliance with those legal, equivalent effective supervision (iii) The third country’s legal and/ supervisory and enforcement arrangements of the relevant third and enforcement in that third or supervisory regime applies to country, as referred to in Article 33(3) of Regulation (EU) No 600/2014 country. the entities referred to in point (a) (as described in a particular recognition decision or mutual recognition equivalent requirements which agreement and subject to any specific conditions). ensure market transparency and integrity by the prevention of market abuse in the form of insider dealing and market manipulation. DRAFT EQUIVALENCE REGULATION Appendix A DRAFT EQUIVALENCE

64 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 65 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

RELEVANT UNION DESCRIPTION OF EFFECT OF AGREED ADDITIONAL RELEVANT UNION DESCRIPTION OF EFFECT OF AGREED ADDITIONAL LEGISLATION EQUIVALENCE RECOGNITION IN THE UNION EQUIVALENCE CRITERIA LEGISLATION EQUIVALENCE RECOGNITION IN THE UNION EQUIVALENCE CRITERIA

27. Regulation (EU) No (a) The third country entities referred to in row 25 of this table shall (i) The third country’s legal and 31. Regulation (EU) No (a) Entities supervised in the relevant third country (as described in a 600/2014 (where that row is included as an agreed equivalence recognition and supervisory framework meets the 575/2013 particular recognition decision or mutual recognition agreement and subject to any specific conditions) be treated in Union law as third requirements of Article 38(3) of subject to any specific conditions) and authorised as, or operating, a [MiFIR: trading country trading venues subject to a legal and supervisory framework Regulation (EU) No 600/2014. [CRR: Credit third-country investment firm, third country credit institutions, or third venues for the in respect of which the Commission has adopted a decision, as institutions, country clearing house or exchanges shall be treated in Union law as purposes of clearing referred to in Article 38(3) of Regulation (EU) No 600/2014, that the investment firms: Art. entities subject to prudential supervisory and regulatory requirements access: Art. 38(1)- legal and supervisory framework of the third country is considered to 107(4)] in that third country with respect to which the Commission has (3)] provide for an effective equivalent system for permitting CCPs and adopted a decision, by way of an implementing act, as referred to trading venues authorised under foreign regimes access to CCPs and in Article 107(3) of Regulation (EU) No 575/2013, determining that trading venues in that third country, with the effect that such third those third country entities are subject to supervisory and regulatory country trading venues are able to make use of the access rights arrangements at least equivalent to those applied in the Union, as in Articles 35 to 36 of Regulation (EU) No 600/2014, as referred to referred to in Article 107(4) of Regulation (EU) No 575/2013 (as in Article 38(1) of Regulation (EU) No 600/2014 (as described in a described in a particular recognition decision or mutual recognition particular recognition decision or mutual recognition agreement and agreement and subject to any specific conditions). subject to any specific conditions). 32. Regulation (EU) No (a) Entities established and supervised in the relevant third country 28. Regulation (EU) No (a) The third country entities referred to in row 12 of this table shall (i) The third country’s legal and 575/2013 which correspond to a central government or central bank (as 600/2014 (where that row is included as an agreed equivalence recognition and supervisory framework meets the described in a particular recognition decision or mutual recognition subject to any specific conditions) be treated in Union law as third requirements of Article 38(3) of [CRR: exposures to agreement and subject to any specific conditions) shall be treated [MiFIR: trading country CCPs subject to a legal and supervisory framework in respect Regulation (EU) No 600/2014. government bodies: in Union law as entities subject to supervisory and regulatory venues for the of which the Commission has adopted a decision, as referred to in Art. 114- 116] arrangements with respect to which the Commission has adopted a purposes of clearing Article 38(3) of Regulation (EU) No 600/2014, determining that the decision by way of an implementing act, as referred to in Article 114(7) access: Art. 38(1)- legal and supervisory framework of the third country is considered to of Regulation (EU) No 575/2013, determining that those third country (3)] provide for an effective equivalent system for permitting CCPs and entities are subject to supervisory and regulatory arrangements at trading venues authorised under foreign regimes access to CCPs and least equivalent to those applied in the Union, as referred to in Article trading venues in that third country, with the effect that such third 114(7) of Regulation (EU) No 575/2013 (as described in a particular country CCPs are able to make use of the access rights in Articles 35 recognition decision or mutual recognition agreement and subject to to 36 of Regulation (EU) No 600/2014, as referred to in Article 38(1) of any specific conditions). Regulation (EU) No 600/2014 (as described in a particular recognition decision or mutual recognition agreement and subject to any specific 33. Regulation (EU) No (a) Entities established and supervised in the relevant third country conditions). 575/2013 which correspond to a regional government or local authority (as described in a particular recognition decision or mutual recognition 29. Regulation (EU) No (a) Entities established in the relevant third country and authorised (i) The third country’s legal and [CRR: exposures to agreement and subject to any specific conditions) shall be treated 600/2014 as, or to operate, a CCP or trading venue (as described in a particular supervisory framework meets the government bodies: in Union law as entities subject to supervisory and regulatory recognition decision or mutual recognition agreement and subject to requirements of Article 38(3) of Art. 114- 116] arrangements with respect to which the Commission has adopted a [MiFIR: trading any specific conditions) shall be treated in Union law as third country Regulation (EU) No 600/2014. decision by way of an implementing act, as referred to in Article 115(4) venues for the CCPs and trading venues subject to a legal and supervisory framework of Regulation (EU) No 575/2013, determining that those third country purposes of clearing in respect of which the Commission has adopted a decision under entities are subject to supervisory and regulatory arrangements access: Art. 38(1)- Article 38(3) of Regulation (EU) No 600/2014, with the effect that at least equivalent to those applied in the Union (as described in a (3)] such third country CCPs and trading venues may request a license and particular recognition decision or mutual recognition agreement and make use of access rights in accordance with Article 37 of Regulation subject to any specific conditions). (EU) No 600/2014, as referred to in Article 38 of Regulation (EU) No 600/2014 (as described in a particular recognition decision or mutual 34. Regulation (EU) No (a) Entities established and supervised in the relevant third country recognition agreement and subject to any specific conditions). 575/2013 which correspond to a public sector entity (as described in a particular recognition decision or mutual recognition agreement and subject to 30. Regulation (EU) No (a) Entities supervised in the relevant third country (as described in a (i) The third country’s legal and [CRR: exposures to any specific conditions) shall be treated in Union law as entities subject 600/2014 particular recognition decision or mutual recognition agreement and supervisory arrangements apply government bodies: to supervisory and regulatory arrangements with respect to which subject to any specific conditions) as, or to operate, an investment to the entities referred to in point Art. 114-116] the Commission has adopted a decision by way of an implementing [MiFIR: investment firm shall be treated in Union law, as third country investment firms (a) legally binding prudential and act, as referred to in Article 116(5) of Regulation (EU) No 575/2013, firms providing subject to legal and supervisory arrangements ensuring that the third business conduct requirements determining that those third country entities are subject to supervisory services to EU country investment firms comply with legally binding prudential meeting the conditions listed and regulatory arrangements at least equivalent to those applied in professional and business conduct requirements which have equivalent effect to at Article 47(1)(a) to (e) of the Union (as described in a particular recognition decision or mutual client and eligible the requirements set out Regulation (EU) No 600/2014, in Directive Regulation (EU) No 600/2014. recognition agreement and subject to any specific conditions). counterparties: Art. 2013/36/EU and in Directive 2014/65/EU and in the implementing measures adopted under Regulation (EU) No 600/201, Directive (ii) Cooperation arrangements 35. Regulation (EU) No (a) Entities corresponding to large financial sector entities (or 47] 2013/36/EU and Directive 2014/65/EU and that the legal framework are in place or will be put in place 575/2013 subsidiaries* of such entities) that are supervised and regulated in of that third country provides for an effective equivalent system for with the relevant third country the relevant third country (as described in a particular recognition the recognition of investment firms authorised under third-country specifying at least the matters [CRR: Credit decision or mutual recognition agreement and subject to any legal regimes which meet the conditions at Article 47(1)(a) to (e) listed at Article 47(2)(a) to (c) of institutions: Art. 142] specific conditions) shall be treated in Union law as entities subject of Regulation (EU) No 600/2014, with the effect that such third Regulation (EU) No 600/2014. to supervisory and regulatory arrangements with respect to which country firms may provide investment services or perform investment the Commission has adopted a decision via an implementing act, activities (with or without ancillary services) to eligible counterparties as referred to in Article 142(2) of Regulation (EU) No 575/2013, and to professional clients within the meaning of Section I of Annex determining that those third country entities were subject to II of Directive 2014/65/EU by applying for registration by ESMA, as supervisory and regulatory arrangements at least equivalent to referred to in Article 46 of Regulation (EU) No 600/2014 (as described those applied in the Union (as described in a particular recognition in a particular recognition decision or mutual recognition agreement decision or mutual recognition agreement and subject to any specific and subject to any specific conditions). conditions). DRAFT EQUIVALENCE REGULATION Appendix A DRAFT EQUIVALENCE * The term «subsidiary» in this row means a subsidiary within the meaning of point 16 of Article 4(1) of Regulation (EU) No 575/2013.

66 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 67 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

RELEVANT UNION DESCRIPTION OF EFFECT OF AGREED ADDITIONAL RELEVANT UNION DESCRIPTION OF EFFECT OF AGREED ADDITIONAL LEGISLATION EQUIVALENCE RECOGNITION IN THE UNION EQUIVALENCE CRITERIA LEGISLATION EQUIVALENCE RECOGNITION IN THE UNION EQUIVALENCE CRITERIA

36. Regulation (EU) No (a) Entities corresponding to large financial sector entities (or 40. Directive 2011/61/EU (a) Entities supervised in the relevant third country (as described in (i) Cooperation arrangements 575/2013 subsidiaries* of such entities) that are supervised and regulated in a particular recognition decision or mutual recognition agreement are in place or will be put in place the relevant third country (as described in a particular recognition [Funds – Non-EU and subject to any specific conditions) and authorised as an AIFM with the relevant third country [CRR: Investment decision or mutual recognition agreement and subject to any AIFMs managing EU shall be treated in Union law as non-EU AIFMs able to acquire prior supervisory authorities (and firms: Art. 142] specific conditions) shall be treated in Union law as entities subject AIFs or marketing A authorisation by the competent authorities of their Member State of contain provisions extending to supervisory and regulatory arrangements with respect to which AIFs in the Union; ElF reference, as referred to in Article 37(1) of Directive 2011/61/EU (as the benefit of such cooperation the Commission has adopted a decision via an implementing act, AIFMs managing Non- described in a particular recognition decision or mutual recognition agreements to competent as referred to in Article 142(2) of Regulation (EU) No 575/2013, EU AIFs] agreement and subject to any specific conditions). authorities* in the Union) that determining that those third country entities were subject to allow an efficient exchange of supervisory and regulatory arrangements at least equivalent to (b) Certain requirements of the relevant third country’s legal and information allowing competent those applied in the Union (as described in a particular recognition supervisory regime applicable to the third country entities referred to authorities to carry out their decision or mutual recognition agreement and subject to any specific in point (a) (as described in a particular recognition decision or mutual duties in accordance with conditions). recognition agreement and subject to any specific conditions) shall Directive 2011/61/EU. be treated in Union law as meeting the requirements listed in Article * The term «subsidiary» in this row means a subsidiary within the meaning 37(2) of Directive 2011/61/EU, with the effect that the third country (ii) An agreement is in place or of point 16 of Article 4(1) of Regulation (EU) No 575/2013. entities referred to in point (a) shall not be under any obligation to will be put in place with the third comply with a provision of Directive 2011/61/EU to the extent that it country which fully complies 37. Directive 2009/138/ (a) The solvency regime of the relevant third country that applies to (i) The solvency regime of is incompatible with the third country requirement (as described in a with the Model Tax Convention EC undertakings with head offices in that third country (as described in a the third country applies to particular recognition decision or mutual recognition agreement and the reinsurance activities of particular recognition decision or mutual recognition agreement and on Income and on Capital and [Solvency II: third subject to any specific conditions) shall be treated in Union law as a undertakings with head offices subject to any specific conditions). ensures an effective exchange country reinsurance third country solvency regime in respect of which the Commission has in the third country referred to of information on tax matters, (c) Entities established in the relevant third country (as described in including any multilateral tax activity: Art. 172] adopted a delegated act, as referred to in Article 172(2) of Directive in point (a) equivalent legally a particular recognition decision or mutual recognition agreement agreements. 2009/138/EC, determining that the solvency regime of the third binding requirements to those and subject to any specific conditions) and authorised as a non-EU country that applies to reinsurance activities of undertakings with applicable in the Union under Title AIF shall be treated in Union law as meeting the requirements listed (iii) The third country’s legal and head offices in that third country is equivalent to that laid down in Title I of Directive 2009/138/EC. in Article 35(2) of Directive 2011/61/EU, with the effect that AIFMs supervisory regime does not I of Directive 2009/138/EC (as described in a particular recognition shall be able to submit a notification to the competent authorities of materially prevent the effective decision or mutual recognition agreement and subject to any specific its home Member State in respect of each non-EU AIF that it intends exercise by the competent conditions). to market, as referred to in Article 35(3) of Directive 2011/61/EU (as authorities of their supervisory described in a particular recognition decision or mutual recognition functions under Directive 2011/61/ 38. (a) The supervisory and solvency regime of the relevant third country (i) The supervisory and solvency Directive 2009/138/ agreement and subject to any specific conditions). EU. EC that is applicable to insurance and reinsurance undertakings with head regime of the third country offices in that third country (as described in a particular recognition applies to the reinsurance or (iv) The third country [Solvency II: EU decision or mutual recognition agreement and subject to any insurance undertakings with requirements referred to in insurers in third specific conditions), shall be treated in Union law as a third country head offices in the third country point (b) are equivalent to countries: solvency supervisory regime in respect of which the Commission has adopted referred to in point (a) equivalent corresponding requirements rules: Art. 227] a delegated act, as referred to in Article 227(4) of Directive 2009/138/ legally binding requirements to applicable in the Union. EU, determining that the supervisory regime of that third country those applicable under Title I, * In this row «competent is equivalent to that laid down in Title I, Chapter VI, of Directive Chapter VI of Directive 2009/138/ authorities» means competent 2009/138/EU, and with the effect that such third country head offices EC and such insurance and authorities within the meaning of are treated as being subject to authorisation and a solvency regime reinsurance undertakings are point (f) of Article 4(1) of Directive at least equivalent to that laid down in Title I, Chapter VI, of Directive subject to authorisation in that 2011/61/EU. 2009/138/EU, as referred to in the second paragraph of Article 227(1) third country. 41. Directive 2011/61/EU (a) Entities established in the relevant third country (as described in a (i) The third country’s legal and/or of Directive 2009/138/EU (as described in a particular recognition particular recognition decision or mutual recognition agreement and supervisory regime applies to the decision or mutual recognition agreement and subject to any specific [AIFM third country subject to any specific conditions) and authorised as, or to operate, a third country entities referred to conditions). depository] depository shall be treated in Union law as depositories established in point (a) equivalent prudential 39. Directive 2009/138/ (a) The prudential regime of the relevant third country which applies (i) The prudential regime of in a third country subject to prudential regulation and supervision in regulation and supervision as respect of which the Commission has adopted an implementing act, applied to depositories in the EC to parent undertakings with head offices in that third country of the third county applies to insurance and reinsurance undertakings (as described in a particular the reinsurance or insurance as referred to in the final sub-paragraph of Article 21(6) of Directive Union. [Solvency II: third recognition decision or mutual recognition agreement and subject undertakings with head offices 2011/61/EU, stating that prudential regulation and supervision of country insurers to any specific conditions) shall be treated as a prudential regime, in in the third country referred to the third country has the same effect as Union law and is effectively in EU: group respect of which the Commission has adopted a delegated act, as in point (a) equivalent legally enforced (as described in a particular recognition decision or mutual recognition agreement and subject to any specific conditions). supervision: Art. referred to in Article 260(3) of Directive 2009/138/EU, determining binding requirements to those 260] that the third country prudential regime is equivalent to that laid applicable under Title III of down in Title III of Directive 2009/138/EU at the level of the group of Directive 2009/138/EC and insurance and reinsurance undertakings referred to in Article 213(2) such entities are subject to (a) and (b) of Directive 2009/138/EU (as described in a particular authorisation in that third country. recognition decision or mutual recognition agreement and subject to any specific conditions). DRAFT EQUIVALENCE REGULATION Appendix A DRAFT EQUIVALENCE

68 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 69 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

RELEVANT UNION DESCRIPTION OF EFFECT OF AGREED ADDITIONAL LEGISLATION EQUIVALENCE RECOGNITION IN THE UNION EQUIVALENCE CRITERIA

1. Regulation (EU) No (a) Entities supervised in the relevant third country (as described in (i) The third country’s legal and/ 600/2014, Directive a particular recognition decision or mutual recognition agreement or supervisory regime applies to 2014/65/EU and subject to any specific conditions) and authorised to carry out the entities referred to in point activities corresponding to investment services and activities (with or (a) requirements which are [Investment services/ without ancillary services) shall be treated in Union law as having the equivalent to those applicable business] same rights as investment firms authorised by a competent authority to investment firms authorised pursuant to Articles 5 to 7 of Directive 2014/65/EU, with the effect pursuant to Articles 5 and 6 of that such third country entities shall be able to provide the investment Directive 2014/65/EU. services and activities, with or without ancillary services, to retail and/or professional clients within the Union either by establishing a branch* in a Member State or by providing such services as referred to in Articles 34 and 35 of Directive 2014/65/EU (as described in a particular recognition decision or mutual recognition agreement and subject to any specific conditions).

* In this row the term «branch» means a branch within the meaning of point (30) of Article 4(1) of Directive 2014/65/EU.

2. Regulation (EU) No (a) Entities supervised in the relevant third country (as described in (i) The third country’s legal and/ Appendix A DRAFT EQUIVALENCE REGULATION 600/2014, Directive a particular recognition decision or mutual recognition agreement or supervisory regime applies to 2014/65/EU and subject to any specific conditions) and authorised to operate as, the entities referred to in point (a) or to operate, a systematic internaliser shall be treated in Union law requirements which are equivalent [Systematic as having the same rights as systematic internalisers authorised by a to those applicable to investment internalisers] competent authority under Directive 2014/65/EU, with the effect that firms authorised as systematic such third country entities shall be able to provide the investment internalisers pursuant to Articles 5 services and activities, with or without ancillary services, to retail and 6 of Directive 2014/65/EU. and/or professional clients within the Union either by establishing a TABLE OF branch* in a Member State or by providing such services as referred to in Articles 34 and 35 of Directive 2014/65/EU (as described in a particular recognition decision or mutual recognition agreement and subject to any specific conditions). ADDITIONAL * In this row the term «branch» means a branch within the meaning of point (30) of Article 4(1) of Directive 2014/65/EU.

3. Directive 2011/61/EU (a) Undertakings supervised in the relevant third country(as (i) A cooperation agreement is described in a particular recognition decision or mutual recognition in place or will be put in place [AIFM delegation] agreement and subject to any specific conditions) and authorised with the third country authorities EQUIVALENCE to carry out portfolio management and/or risk management with responsibility for supervising activities shall be treated in Union law as third country undertakings the third country undertakings to whom AIFMs may delegate portfolio management or risk referred to in point (a) for the management, which are authorised or registered for the purpose of purposes of enabling monitoring asset management, and subject to supervision and where there is and supervising of the third RECOGNITION cooperation between competent authorities of the home Member country undertaking (and State of the AIFM and the supervisory authority of the third country contains provisions extending undertaking, satisfying the requirements at points (c) to (d) of Article the benefit of the cooperation 20(1) of Directive 2011/61/EU (as described in a particular recognition agreement to Union supervisory decision or mutual recognition agreement and subject to any specific authorities). PROVISIONS conditions). 4. Directive 2011/61/EU (a) Entities established in the relevant third country (as described in a (i) The third country’s legal and/or particular recognition decision or mutual recognition agreement and supervisory regime applies to the Annex II - Part I [AIFM third country subject to any specific conditions) and authorised as, or to operate, a third country entities referred to depository] depository shall be treated in Union law as depositories established in point (a) equivalent prudential in a third country subject to prudential regulation and supervision in regulation and supervision as respect of which the Commission has adopted an implementing act, applied to depositories in the as referred to in the final sub-paragraph of Article 21(6) of Directive Union. 2011/61/EU, stating that prudential regulation and supervision of the third country has the same effect as Union law and is effectively enforced (as described in a particular recognition decision or mutual recognition agreement and subject to any specific conditions).

70 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 71 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

RELEVANT UNION DESCRIPTION OF EFFECT OF AGREED ADDITIONAL RELEVANT UNION DESCRIPTION OF EFFECT OF AGREED ADDITIONAL LEGISLATION EQUIVALENCE RECOGNITION IN THE UNION EQUIVALENCE CRITERIA LEGISLATION EQUIVALENCE RECOGNITION IN THE UNION EQUIVALENCE CRITERIA

5. Regulation (EC) No (a) Credit ratings issued by entities supervised in the relevant third (i) The third country’s legal and/or 6. Directive 2013/36/EU, (a) Entities supervised in the relevant third country (as described in a (i) The third country’s legal and/ 1060/2009 country (as described in a particular recognition decision or mutual supervisory regime ensures that Regulation (EU) No particular recognition decision or mutual recognition agreement and or supervisory regime applies to recognition agreement and subject to any specific conditions) and the third country entities referred 575/2013 subject to any specific conditions) and authorised as, or operating as, the third country entities referred [Credit Rating authorised as, or to operate, a credit rating agency shall be treated in to in point (a) are subject to a credit institution shall be treated in Union law as having the same to in point (a) requirements that Agencies] Union law as credit ratings which may be used by credit institutions, binding rules equivalent to those [Credit institution rights as credit institutions authorised by a Member State pursuant are equivalent to those that are investment firms, insurance undertakings, reinsurance undertakings, set out in Articles 6 to 12 and activities] to Article 8 of Directive 2013/36/EU, with the effect that such third required to be applied to credit institutions for occupational retirement provision, management Annex I of Regulation (EC) No country entities shall be able to carry out the activities listed in Annex institutions authorised by Member companies, investment companies, alternative investment fund 1060/2009, with the exception of I of Directive 2013/36/EU within the Union either by establishing a States pursuant to Article 8 of managers and central counterparties for regulatory purposes, as Articles 6a, 6b, 8a, 8b, 8c and 11a, branch* in a Member State or by providing such services, as referred Directive 2013/36/EU. referred to in Article 4(1) of Regulation (EC) No 1060/2009 (as point (ba) of point 3 and points 3a to in Article 33 of Directive 2013/36/EU (as described in a particular described in a particular recognition decision or mutual recognition and 3b of Section B of Annex I of recognition decision or mutual recognition agreement and subject to (ii) The third country’s legal and/ agreement and subject to any specific conditions). Regulation (EC) No 1060/2009. any specific conditions). or supervisory regime applies to the third country entities referred (ii) The third country’s legal and/ (b) Entities supervised in the relevant third country (as described in a to in point (b) requirements that or regulatory regime applicable particular recognition decision or mutual recognition agreement and correspond and are equivalent to to the third country entities subject to any specific conditions) and authorised as, or operating, those contained in Article 34(1)(a) referred to in point (a) prevents a financial institution shall be treated in Union law as having the of Directive 2013/36/EU. interference by the supervisory same rights as a financial institution from another Member State, as authorities and other public referred to in Article 34(1) of Directive 2013/36/EU, with the effect (iii) The third country’s legal regime authorities of that third country that such third country entities shall be able to provide the activities applies to the third country entities with the content of credit ratings listed in Annex I of Directive 2013/36/EU within the Union either by referred to in point (a) requirements and methodologies. establishing a branch or by providing services, and shall be treated that are equivalent to those applied as if the requirements in Article 34(1)(a) to (b) of Directive 2013/36/ to credit institutions pursuant to (iii) A cooperation agreement is EU have been satisfied (as described in a particular recognition Article 1(3) of Directive 2014/65/EU, in place or will be put in place decision or mutual recognition agreement and subject to any specific where such entities are authorised between the relevant third conditions). in that third country to carry country and ESMA specifying out investment services and/or at least the matters referred * In this row the term «branch» means a branch within the meaning of performing investment activities. to in Article 5(7)(a) and (b) of Article 4(17) of Regulation (EU) 575/2013. Regulation (EC) No 1060/2009. (iv) Where the third country entities referred to in point (a) or (b) are authorised in the relevant third country to carry out activities corresponding to the investment services and activities listed in points (3) and (6) of Section A of Annex I of Directive 2014/65/ EU, the third country’s legal or supervisory regime applies requirements which are equivalent to those applicable under Part 6 of Regulation (EU) No 575/2013 taking into account the nature, scale and complexity of the third country entity’s activities.

7. Regulation (EU) (a) The provisions of Regulation (EU) 2015/751 shall (as described in (i) The third country’s legal 2015/751 a particular recognition decision or mutual recognition agreement regime applies to payment service and subject to any specific conditions) be extended to apply to card- providers, processing entities, [Interchange Fees] based payments transactions carried out between the Union and payment card schemes, issuers, the relevant third country, where both the payer’s payment service acquirers and other technical provider* and the payee’s payment service provider are, respectively, service providers located in located in either the Union or the relevant third country (as described that third country, reciprocal in a particular recognition decision or mutual recognition agreement and equivalent requirements to and subject to any specific conditions). those applied by Regulation (EU) 2015/751. (b) Payment service providers, processing entities, payment card schemes, issuers, acquirers and other technical service providers located in the Union shall (as described in a particular recognition decision or mutual recognition agreement and subject to any specific conditions) be subject to the same requirements contained in Regulation (EU) 2015/751 when carrying out card-based payment transactions with payment services providers, payers, payees and/or consumers** located in the relevant third country (as described in a particular recognition decision or mutual recognition agreement and subject to any specific conditions).

* In this row the term «payment service provider» means a payment service provider within the meaning of Article 2(24) of Regulation (EU) 2015/751. ** In this row the term «consumer» means a consumer within the meaning of Article 2(3) of Directive 2008/48/EC. DRAFT EQUIVALENCE REGULATION Appendix A DRAFT EQUIVALENCE

72 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 73 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

RELEVANT UNION DESCRIPTION OF EFFECT OF AGREED ADDITIONAL RELEVANT UNION DESCRIPTION OF EFFECT OF AGREED ADDITIONAL LEGISLATION EQUIVALENCE RECOGNITION IN THE UNION EQUIVALENCE CRITERIA LEGISLATION EQUIVALENCE RECOGNITION IN THE UNION EQUIVALENCE CRITERIA

8. Directive 2008/48/ (a) Entities supervised in the relevant third country (as described in a (i) The third country’s legal and/or 10. Directive 2014/65/EU (a) Entities supervised in a third country (as described in a particular EC, Directive 2014/17/ particular recognition decision or mutual recognition agreement and supervisory regime applies to the recognition decision or mutual recognition agreement and subject [Data Service EU. subject to any specific conditions) and authorised to operate as, and third country entities referred to to any specific conditions) and authorised as, or to operate, a data carry out the activities of, a creditor or credit intermediary in relation in points (a) and (b) requirements Providers] services provider (including an ARM, CTP or ARM) shall be treated [Mortgage Lending: to credit agreements* with consumers shall be treated in Union that are equivalent to those in Union law as having the same rights as a data reporting services Consumer Credit; law as complying with the requirements applicable under Directive applied by Directive 2008/48/EC provider authorised by the competent authority of a Member State, Mortgage Providers] 2008/48/EC (as they have been implemented into the law of any and Directive 2014/17/EU. as referred to in Article 59(1) of Directive 2014/65/EU, with the effect Member State, including any applicable derogations or exemptions that such third country entities shall be eligible to be included on the permitted by that directive) by complying with the corresponding list that the European Securities and Markets Authority is required third country requirements (as described in a particular recognition to establish under Article 59(3) of Directive 2014/65/EU (and any decision or mutual recognition agreement and subject to any specific withdrawals of authorisation in that third country shall be published conditions) applicable to creditors or credit intermediaries in that on that list for a period of 5 years), and such third country entities third country in relation to credit agreements with consumers. shall be able to exercise the same rights that a data reporting services provider would have under Directive 2014/65/EU, by complying (b) Entities supervised in the relevant third country (as described in with the equivalent legal and supervisory requirements of the third a particular recognition decision or mutual recognition agreement country instead of requirements applicable to a data reporting and subject to any specific conditions) and authorised to operate services provider authorised pursuant to Directive 2014/65/EU, and as, and to carry out activities in relation to credit agreements within any national implementing measures adopted pursuant to Directive the scope of Article 3 of Directive 2014/17/EU (including ancillary 2014/65/EU (as described in a particular recognition decision or services**) of, a creditor, credit intermediary, tied credit intermediary, mutual recognition agreement and subject to any specific conditions). or appointed representative shall be treated in Union law as able (subject to the terms of the mutual recognition agreement) to carry 11. Directive 98/26/EC (a) Formal arrangements established in the relevant third country (as (i) The third country’s legal system out such activities in relation to credit agreements, with consumers described in a particular recognition decision or mutual recognition provides reciprocal and equivalent in the Union, including by establishing a branch (subject to the terms [Payment & Securities agreement and subject to any specific conditions) and would protections as provided in of a specific mutual recognition agreement), by complying with the Settlement Services] constitute a designated system in that third country (but for being Directive 98/26/EC to systems, corresponding equivalent third country requirements (as described governed by the law of the third country), shall be treated in Union participants and collateral security. in a particular recognition decision or mutual recognition agreement law as if they were systems designated by a Member State under and subject to any specific conditions), instead of the requirements Article 2 of Directive 98/26/EC, with the effect that the protections applied by Directive 2014/17/EC (as they have been implemented into applicable to systems, participants and collateral security that the law of any Member State, including any applicable derogations or Member States are required to implement in accordance with exemptions permitted by that Directive). Directive 98/26/EC shall be extended (subject to the terms of the mutual recognition agreement) to such third country transfer (c) Entities referred to in point (a) and (b) of row 6 of this table, may systems (as described in a particular recognition decision or mutual be included in the third country entities referred to in points (a) and recognition agreement and subject to any specific conditions). (b), and subject to the terms of any relevant recognition decision or mutual recognition agreement which contains the equivalence 12. Directive 2009/65/EC (a) Undertakings or investment companies established and (i) The third country’s legal and/ recognition provision at row 6 of this table as an agreed equivalence supervised in the relevant third country (as described in a particular or supervisory regime applies to provision. [UCITS Funds] recognition decision or mutual recognition agreement and subject to the third country undertakings * In this row the term «credit agreement» means a credit agreement that any specific conditions) and authorised in a manner corresponding referred to in point (a) is not excluded from Directive 2008/48/EC pursuant to Article 2(2) and to UCITs (but for being established in a third country) shall be requirements that are equivalent 2(2a) of Directive 2008/48/EC. treated in Union law as having the same rights as UCITs managed by to those applied to UCITs ** In this row the term «ancillary services» means ancillary services within management companies authorised pursuant to Article 5 of Directive authorised pursuant to Article the meaning of Article 4(4) of Directive 2014/17/EU. 2009/65/EC or investment companies authorised pursuant to Article 5(1) of Directive 2009/65/EC or 27 of Directive 2009/65/EC, whether such third country undertakings investment companies authorised (a) Entities supervised in the relevant third county (as described in a 9. Directive 2014/65/EU, are managed by the third country entities referred to in point (b) or pursuant to Article 27 of Directive particular recognition decision or mutual recognition agreement and Regulation (EU) No by a management company established in the Union and authorised 2009/65/EC. subject to any specific conditions) and authorised as, or to operate, 600/2014 by the competent authorities of that management company’s home a regulated market in that third country shall be treated in Union law Member State pursuant to Article 6(1) of Directive 2009/65/EC (as (ii) The third country’s legal and/ as having the same rights as a regulated market complying with Title [Regulated Markets] described in a particular recognition decision or mutual recognition or supervisory regime applies to III of Directive 2014/65/EU and authorised by a competent authority agreement and subject to any specific conditions). the third country entities referred of a Member State, as referred to in Article 44(1) Directive 2014/65/ to in point (b) requirements that EU, with the effect that (subject to the terms of the recognition (b) Entities supervised in the relevant third country (as described in a are equivalent to management decision or mutual recognition agreement) such a third country particular recognition decision or mutual recognition agreement and companies authorised pursuant to market or market operator shall be able to exercise the same rights subject to any specific conditions) and authorised as, or to operate, Article 6(1) of Directive 2009/65/ that a regulated market would be able to in the Union under Directive a management company shall be treated in Union law as having EC. 2014/65/EU and Regulation (EU) 600/2014, by complying with the the same rights as a management company authorised pursuant equivalent legal and supervisory requirements of the third country (as to Article 6(1) of Directive 2009/65/EC, with the effect that such (iii) The third country’s legal and/ described in a particular recognition decision or mutual recognition third country entities shall be able to carry out the activities of a or supervisory regime applies to agreement) instead of requirements applicable to a regulated market management company, as referred to in Article 6(2) (and in Article the third country entities referred authorised pursuant to Directive 2014/65/EU or Regulation (EU) No 6(3), of Directive 2009/65/EC where a Member State has exercised to in point (b) requirements that 600/2014, and any national implementing measures adopted by a the relevant derogation in that article) of Directive 2009/65/EC are equivalent to those referred to in Article 6(4) of Directive Member State pursuant to Directive 2014/65/EU (as described in a either by providing such services or establishing a branch* in a particular recognition decision or mutual recognition agreement and Member State, as referred to in Article 16 of Directive 2009/65/EC (as 2009/65/EC, where such third subject to any specific conditions). described in a particular recognition decision or mutual recognition country entities are authorised in agreement and subject to any specific conditions). that third country to carry out the services referred to in Article 6(3) * In this row the term «branch» means a branch within the meaning of (a) and (b) of Directive 2009/65/ point (g) of Article 2(1) of Directive 2009/65/EC. EC. DRAFT EQUIVALENCE REGULATION Appendix A DRAFT EQUIVALENCE

74 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 75 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

RELEVANT UNION DESCRIPTION OF EFFECT OF AGREED ADDITIONAL RELEVANT UNION DESCRIPTION OF EFFECT OF AGREED ADDITIONAL LEGISLATION EQUIVALENCE RECOGNITION IN THE UNION EQUIVALENCE CRITERIA LEGISLATION EQUIVALENCE RECOGNITION IN THE UNION EQUIVALENCE CRITERIA

13. Directive 2009/65/EC (a) Where a management company delegates functions to a third- (i) A cooperation agreement for 18. Directive 2009/110/ (a) Entities supervised in the relevant third country (as described in a (i) The third country’s legal and/ country undertaking pursuant to Article 13 of Directive 2009/65/ the purposes of monitoring the EC particular recognition decision or mutual recognition agreement and or supervisory regime applies to [UCITs delegation of EC and such a mandate involves investment management, the compliance of the management subject to any specific conditions) and authorised as, or operating, an the third country entities referred management] requirement that cooperation between the supervisory authorities company with the requirements of [Electronic money electronic money institution shall be treated in Union law as having to in point (a) requirements concerned must be ensured shall (as described in a particular Directive 2009/65/EC is in place services, electronic the same rights as electronic money institutions granted authorisation that are equivalent to those that recognition decision or mutual recognition agreement and subject or will be put in place with the money institutions] pursuant to Title II of Directive 2009/110/EEC, with the effect that are required to be applied to to any specific conditions) in Union law be deemed to have been relevant third country supervisory such third country entities shall be able to pursue the activity of electronic money institutions satisfied for the purposes of Article 13(1)(d) of Directive 2009/65/ authorities (and contains issuing electronic money within the Union, either by establishing authorised pursuant to Title II of EC (as described in a particular recognition decision or mutual provisions extending the benefit a branch* or by providing such services (including the services Directive 2009/110/EC. recognition agreement and subject to any specific conditions). of the cooperation agreement to referred to in Article 18 of Directive (EU) 2015/2366), as referred to in Union supervisory authorities). Article 28 of Directive (EU) 2015/2366 applying to electronic money institutions mutatis mutandis pursuant to Article 3(1) of Directive 14. Directive 2009/138/ (a) Entities supervised in the relevant third country (as described in a (i) The legal and/or supervisory 2009/110/EC (as described in a particular recognition decision or EC particular recognition decision or mutual recognition agreement and regime of the third country mutual recognition agreement and subject to any specific conditions). subject to any specific conditions) and authorised as, or to operate, an applies to the third country [Direct Insurance & insurance undertaking and/or reinsurance undertaking, shall be treated entities referred to in point (a) (b) Point (a) does not prejudice the ability of third country entities Reinsurance] in Union law as having the same rights as an insurance undertaking and/ requirements that are equivalent referred to in point (a) or (b) of row 6 of this table that are authorised or reinsurance undertaking authorised by a Member State pursuant to those applied to insurance in the relevant third country to carry out activities corresponding to Article 14 of Directive 2009/138/EC, with the effect that such third undertakings or reinsurance to «issuing electronic money» (as referred in Annex I of Directive country entities shall be able to insure the classes of insurance listed undertakings authorised under 2013/36/EU), where any relevant recognition decision or mutual at Part A of Annex I and Annex II of Directive 2009/138/EC (including Article 14 of Directive 2009/138/ recognition agreement has included the equivalence recognition ancillary risks) and/or carry out reinsurance within the Union, either EC. provision at row 6 of this table. by establishing a branch* in a Member State or providing services as * In this row the term «branch» means a branch within the meaning of an insurance undertaking, as referred to in Article 15(1) of Directive Article 4(39) of Directive (EU) 2015/2366. 2009/138/EC (as described in a particular recognition decision or mutual recognition agreement and subject to any specific conditions). 19. Directive (EU) (a) Entities supervised in the relevant third country (as described in (i) The third country’s legal and/ 2015/2366 a particular recognition decision or mutual recognition agreement or supervisory regime applies to * In this row the term «branch» means a branch within the meaning of Article and subject to any specific conditions) and authorised as, or to the third country entities referred 162(3) of Directive 2009/138/EC, with the reference to the home Member State in Article 13(11) being construed as a reference to the third country that [Payment Services] operate, a payment institution shall be treated in Union law as having to in point (a) requirements which has authorised the third country undertaking as an insurance undertaking. the same rights as a payment institution authorised by a Member are equivalent to those which are State pursuant to Article 11 of Directive (EU) 2015/2366, with the required to be applied to payment 15. Regulation (EU) No (a) Entities supervised in the relevant third country (as described in (i) The third country’s legal and/or effect that such third country entities shall be able to provide and institutions authorised pursuant 575/2013 a particular recognition decision or mutual recognition agreement supervisory regime ensures that execute payment services (including the services referred to in Article to Article 11 of Directive (EU) and subject to any specific conditions) and authorised to provide life the third country entities referred 18 of Directive (EU) 2015/2366) throughout the Union, either by 2015/2366. [Life insurance, insurance shall be treated in Union law as being subject to supervision to in point (a) are subject to establishing a branch* or providing such services, as referred to in eligible collateral] by a competent authority of a third country which applies supervisory requirements which are equivalent Article 28 of Directive (EU) 2015/2366 (as described in a particular and regulatory arrangements at least equivalent to those applied in to companies providing life recognition decision or mutual recognition agreement and subject to the Union, as referred to in Article 212(2)(j) of Regulation (EU) No insurance that are subject to any specific conditions). 575/2013 (as described in a particular recognition decision or mutual Directive 2009/138/EC. recognition agreement and subject to any specific conditions). (b) Point (a) does not prejudice the ability of third country entities referred to in point (a) of row 18 of this table that are authorised in 16. Directive (EU) (a) Entities supervised in the relevant third country (as described in (i) The third country’s legal the relevant third country to carry out activities corresponding to 2016/97 a particular recognition decision or mutual recognition agreement and/or supervisory regime those carried out by electronic money issuers** where any relevant and subject to any specific conditions) and authorised as, or to applies to the third country recognition decision or mutual recognition agreement has included [Insurance Mediation] operate, an insurance intermediary, a reinsurance intermediary and/ entities referred to in point (a) the equivalence recognition provision at row 18 of this table. or an ancillary insurance intermediary shall be treated in Union law requirements that are equivalent as having the same rights as insurance, reinsurance and ancillary to those that are applicable (c) Point (a) does not prejudice the ability of third country entities insurance undertakings registered with a competent authority to insurance, reinsurance and referred to in point (a) or (b) of row 6 of this table that are authorised pursuant to Article 13(1) of Directive (EU) 2016/97, with the effect that ancillary insurance intermediaries in the relevant third country to carry out activities corresponding such third country entities shall be able to carry on insurance and/or registered with a competent to «issuing electronic money» (as referred in Annex I of Directive reinsurance distribution, or insurance distribution on an ancillary basis authority pursuant to Article 3 of 2013/36/EU), where any recognition decision or mutual recognition as described in point (4) of Article 2(1) of Directive (EU) 2016/97 Directive (EU) 2016/97. agreement has included the equivalence recognition provision at row within the Union by establishing a branch** in a Member State or by 6 of this table. providing such services, as referred to in Articles 4 and 6 of Directive * In this row the term «branch» means a branch within the meaning of (EU) 2016/97 (as described in a particular recognition decision or Article 4(39) of Directive (EU) 2015/2366. mutual recognition agreement and subject to any specific conditions). ** In this point the term «electronic money issuers» means an electronic money issuer within the meaning of point 3 of Article 2(1) of Directive ** In this row the term «branch» means a branch within the meaning of 2009/110/EC. point (12) of Article 2(1) of Directive (EU) 2016/97 with the reference to the intermediary’s home Member State being construed as the third country that the intermediary is authorised by. 20. Directive 2014/59/EU (a) Third-country resolution proceedings applied by the authorities (i) The third country’s legal and/ of the relevant third country pursuant to the third country’s legal or supervisory regime applies 17. Directive 2000/31/EC (a) The provisions of Directive 2000/31/EC shall (as described in (i) The third country’s legal system [Recognition of third and/or supervisory regime (as described in a particular recognition equivalent principles to those a particular recognition decision or mutual recognition agreement provides reciprocal and equivalent country resolution decision or mutual recognition agreement and subject to any applied in the Union under [E-Commerce] and subject to any specific conditions) be treated in Union law as rights and protections to persons proceedings] specific conditions) shall (subject to the terms of the specific mutual Directive 2014/59/EU to the extending applicable rights to persons and entities located in the and entities located in the Union recognition agreement) be treated in Union law as recognised third- recovery and resolution of third relevant third country including those corresponding to service as are provided in Directive country resolution proceedings, as referred to in Article 94(2) of country entities corresponding to providers, consumers***, and recipients of the e- society service (as 2000/31/EC. Directive 2014/59/EU, which national resolution authorities shall assist those listed in Article 1(a) to (e) of described in a particular recognition decision or mutual recognition with implementing and enforcing in accordance with their national Directive 2014/59/EU. agreement and subject to any specific conditions). law (as described in a particular recognition decision or mutual recognition agreement and subject to any specific conditions). *** In this row the term «consumer» means a consumer within the DRAFT EQUIVALENCE REGULATION Appendix A DRAFT EQUIVALENCE meaning of Article 2(e) of Directive 2000/31/EC.

76 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 77 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

RELEVANT UNION DESCRIPTION OF EFFECT OF AGREED ADDITIONAL LEGISLATION EQUIVALENCE RECOGNITION IN THE UNION EQUIVALENCE CRITERIA

21. Regulation (EU) (a) Undertakings supervised in the relevant third country and 2015/760 authorised as an ELTIF (as described in a particular recognition decision or mutual recognition agreement and subject to any specific [ELTIFs] conditions) shall be treated in Union law as having the same rights as ELTIFs authorised pursuant to Regulation (EU) 2015/760 (as described in a particular recognition decision or mutual recognition agreement and subject to any specific conditions). (b) Undertakings supervised in the relevant third country and authorised as, or to operate, a manager of an ELTIF (as described in a particular recognition decision or mutual recognition agreement and subject to any specific conditions) shall be treated in Union law as having the same rights as EU AIFMs authorised to manage ELTIFs pursuant to Regulation (EU) 2015/760 (as described in a particular recognition decision or mutual recognition agreement and subject to any specific conditions).

22. Regulation (EU) No (a) Undertakings supervised in the relevant third country and 345/2013 authorised as a qualifying venture capital fund (as described in a particular recognition decision or mutual recognition agreement and [EuVECA] subject to any specific conditions) shall be treated in Union law as having the same rights as a qualifying venture capital fund authorised pursuant to Regulation (EU) No 345/2013 (as described in a particular recognition decision or mutual recognition agreement and subject to any specific conditions). (b) Undertakings supervised in the relevant third country and authorised as, or to operate, a manager of a qualifying venture capital fund (as described in a particular recognition decision or mutual recognition agreement and subject to any specific conditions) shall be treated in Union law as having the same rights as a manager of a qualifying venture capital fund authorised pursuant to Regulation (EU) No 345/2013 (as described in a particular recognition decision or mutual recognition agreement and subject to any specific conditions).

23. Regulation (EU) No (a) Undertakings supervised in the relevant third country and 346/2013 authorised as a qualifying social entrepreneurship fund (as described in a particular precognition decision or mutual recognition agreement [EuSEF] and subject to any specific conditions) shall be treated in Union law as having the same rights as a qualifying social entrepreneurship fund authorised pursuant to Regulation (EU) No 346/2013 (as described in a particular recognition decision or mutual recognition agreement and subject to any specific conditions). (b) Undertakings supervised in the relevant third country and authorised as, or to operate, a manager of a qualifying social entrepreneurship fund (as described in a particular recognition decision or mutual recognition agreement and subject to any specific conditions) shall be treated in Union law as having the same rights as a manager of a qualifying social entrepreneurship fund authorised pursuant to Regulation (EU) No 346/2013 (as described in a particular recognition decision or mutual recognition agreement and subject to any specific conditions). DRAFT EQUIVALENCE REGULATION Appendix A DRAFT EQUIVALENCE

78 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 79 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds Part II 72

RELEVANT UNION DESCRIPTION OF EFFECT OF AGREED ADDITIONAL LEGISLATION EQUIVALENCE RECOGNITION IN THE UNION EQUIVALENCE CRITERIA

24. Directive 2011/61/EU (a) Entities supervised in the relevant third country (as described in a particular recognition decision or mutual recognition agreement [AIFM own funds and subject to any specific conditions) and authorised as a credit requirement institution or insurance undertaking shall be treated in Union law as guarantee] subject to prudential rules considered to be equivalent to those laid down in Union law, with the effect that competent authorities may treat guarantees provided by such third country entities as reducing the additional amount of own funds required of an AIFM, as referred to in Article 9(6) of Directive 2011/61/EU (as described in a particular recognition decision or mutual recognition agreement and subject to any specific conditions). (b) Third country entities referred to in point (a) of row 6 and point (a) of row 14 of Part I may be included in the third country entities referred to in point (a) of this row, where relevant, and subject to the terms of any relevant recognition decision or mutual recognition agreement which contains equivalence recognition provision at row 6 and point (a) of row 14 of Part I as an agreed equivalence provision. Appendix A DRAFT EQUIVALENCE REGULATION 25. Directive 2009/65/EC (a) Transferable securities and money market instruments admitted (i) The third country’s legal to official listing on a stock exchange in the relevant third country and/or supervisory regime [UCITs, various third or which are dealt on another regulated market in the relevant third applies to the third country country categories] country (as described in a particular recognition decision or mutual undertakings referred to in point recognition agreement and subject to any specific conditions) (b) requirements ensuring a level shall be treated in Union law as being admitted to, or dealt, on a of protection for unit-holders stock exchange or regulated market, that has been approved by a equivalent to that provided under TABLE OF competent authority, as referred to in Article 50(1)(c) of Directive Union law for unit-holders in a 2009/65/EC (as described in a particular recognition decision or UCITs and equivalent to the rules mutual recognition agreement and subject to any specific conditions). on asset segregation, borrowing, lending, and uncovered sales of (b) Units of collective investment undertakings established in the transferable securities and money relevant third country (as described in a particular recognition market instruments of Directive ADDITIONAL decision or mutual recognition agreement and subject to any specific 2009/65/EC. conditions) shall be treated in Union law as collective investment undertakings subject to supervision considered by a competent (ii) The third country’s legal and/ authority to be equivalent to that laid down in Community law, or supervisory regime applies to and that cooperation between authorities is sufficiently ensured, the third country entities referred EQUIVALENCE as referred to in Article 50(e)(i) of Directive 2009/65/EC; and as to in point (c) prudential rules undertakings ensuring a level of protection for unit-holders equivalent that are equivalent to those laid to that provided for unit-holders in a UCITs and the requirements of down in Union law. Directive 2009/65/EC, as referred to in Article 50(1)(e)(ii) of Directive 2009/65/EC (as described in a particular recognition decision or (iii) The third country’s legal and/ RECOGNITION mutual recognition agreement and subject to any specific conditions). or supervisory regime applies to the third country issuers referred (c) Prudential rules of the relevant third country applicable to the to in point (d) prudential rules registered offices of credit institutions located in that third country (as that are equivalent to those laid described in a particular recognition decision or mutual recognition down in Union law. PROVISIONS agreement and subject to any specific conditions) shall be treated in Union law as prudential rules considered by a competent authority to 72 be equivalent to those laid down in Community law, as referred to in Article 50(1)(f) of Directive 2009/65/EC (as described in a particular Annex II - Part II recognition decision or mutual recognition agreement and subject to any specific conditions). (d) Establishments supervised and subject to the prudential regime of the relevant third country (as described in a particular recognition decision or mutual recognition agreement and subject to any specific conditions) shall be treated in Union law as establishments issuing or guaranteeing the money market instruments referred to in Article 50(1)(h) of Directive 2009/65/EC subject to and complying with prudential rules considered by a competent authority to be at least as stringent as those laid down in Community law, as referred to in Article 50(1)(h)(iii) of Directive 2009/65/EC (as described in a particular recognition decision or mutual recognition agreement and subject to any specific conditions).

72 NOTE: These are additional new equivalence provisions, separated from the provisions in Part I, Annex II as these are provisions granting discretion to national competent authorities to determine third country equivalence. National competent authorities may wish to retain these discretions however.

80 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 81 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

RELEVANT UNION DESCRIPTION OF EFFECT OF AGREED ADDITIONAL LEGISLATION EQUIVALENCE RECOGNITION IN THE UNION EQUIVALENCE CRITERIA

26. Directive 2009/65/EC (a) Credit institutions and insurance undertakings with registered (i) The third country’s legal offices in, and supervised by, the relevant third country (as described and/or supervisory regime [UCITs credit in a particular recognition decision or mutual recognition agreement applies to the third country institutions/ and subject to any specific conditions) and authorised as a credit credit institutions and insurance insurance own funds institution or insurance undertaking shall be treated in Union law as undertakings referred to in point requirement] subject to prudential rules considered by a competent authority as (a) prudential rules which are equivalent to those laid down in Community law, as referred to in equivalent to those laid down in Article 7(1) of Directive 2009/65/EC, with the effect that management Union law. companies may (if authorised by a Member State) not provide up to 50% of the additional amount of own funds referred to in point (i) of Article 7(1)(a) of Directive 2009/65/EC on the basis of such a management company benefiting from a guarantee of the same amount given by a credit institution or an insurance undertaking which has its registered office in the relevant third country and is subject to prudential rules considered as equivalent to those laid down in Community law (as described in a particular recognition decision or mutual recognition agreement and subject to any specific conditions).

27. Directive 2009/138/ (a) Branches* in the Union of entities carrying out the business (i) The third country’s legal and/ EC referred to in the first subparagraph of Article 2(1) of Directive or supervisory regime ensures 2009/138/EC with head offices located in, and supervised by, the that the third country entities [Insurance business relevant third country (as described in a particular recognition referred to in point (a) comply carried on by decision or mutual recognition agreement and subject to any specific with Union requirements undertakings with conditions) shall be treated in Union law as having the same rights as which are equivalent to the third country head branches which have been authorised by a Member State pursuant to requirements under Articles offices] Article 162(2) of Directive 2009/138/EC, with the effect that the Union 162(2)(a), and 162(2)(c) to 162(2) branches of such entities with head offices in a third country shall be (i) of Directive 2009/138/EC. able to carry out the business referred to in the first subparagraph of Article 2(1) of Directive 2009/138/EC, as referred to in Article 162 of Directive 2009/138/EC (as described in a particular recognition decision or mutual recognition agreement and subject to any specific conditions).

DRAFT EQUIVALENCE REGULATION Appendix A DRAFT EQUIVALENCE * In this row the term «branch» means a branch within the meaning of Article 162(3) of Directive 2009/138/EC with the reference to authorisation in a Member State being construed as authorisation in the relevant third country.

82 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 83 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

RELEVANT UNION LEGISLATION EXISTING RECOGNITION PROVISION

1. Directive 2003/71/EC Article 20(3)

2. Commission Regulation (EC) No 809/2004 Article 35

3. Directive 2004/109/EC Article 23(4) sub-paragraph 3

4. Directive 2004/109/EC Article 23(4)

5. Directive 2013/34/EU Article 46

6. Regulation (EC) No 1060/2009 Article 5(6)

7. Directive 2006/43/EC Article 47(3)

8. Directive 2006/43/EC Article 46(2)

9. Regulation (EU) No 648/2012 Article 1(6)

10. Regulation (EU) No 648/2012 Article 2a

11. Regulation (EU) No 648/2012 Article 13(2)

12. Regulation (EU) No 648/2012 Article 25(2)

13. Regulation (EU) No 648/2012 Article 75(1)

14. Regulation (EU) No 909/2014 Article 25(6)

15. Regulation (EU) No 2015/2365 Article 2(4)

16. Regulation (EU) No 2015/2365 Article 19(1) Appendix A DRAFT EQUIVALENCE REGULATION 17. Regulation (EU) No 2015/2365 Article 21(1) 18. Regulation (EU) No 2016/1011 Article 30(2)

19. Regulation (EU) No 2016/1011 Article 30(3)

Annex III 20. Regulation (EU) No 236/2012 Article 17(2)

21. Regulation (EU) No 596/2014 Article 6(5)

22. Regulation (EU) No 596/2014 Article 6(6)

23. Regulation (EU) No 600/2014 Article 1(9)

24. Regulation (EU) No 600/2014 Article 28(4)

25. Regulation (EU) No 600/2014 Article 33(2)

26. Regulation (EU) No 600/2014 Article 38

27. Regulation (EU) No 600/2014 Article 47(1)

28. Directive 2014/65/EU Article 25(4)(a)

29. Regulation (EU) No 575/2013 Article 107(4)

30. Regulation (EU) No 575/2013 Article 114(7)

31. Regulation (EU) No 575/2013 Article 115(4)

32. Regulation (EU) No 575/2013 Article 116(5)

33. Regulation (EU) No 575/2013 Article 142(2)

34. Directive 2009/138/EC Article 172(2)

35. Directive 2009/138/EC Article 227(4) or 227(5)

36. Directive 2009/138/EC Article 260(3) or 260(5)

84 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 85 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

Appendix B DRAFT UK IMPLEMENTATION OF THE EQUIVALENCE REGULATION

86 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 87 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

20[•] No.[•] PART II [EUROPEAN WITHDRAWAL ACT] APPLICATION OF THE MUTUAL RECOGNITION REGULATION The [European Withdrawal] Act 20[•] (Mutual Recognition Regulation) Order 20[•]

04. APPLICATION Made [A draft of these Regulations has been laid before and approved by a resolution of each House of Parliament (1) The Regulation shall apply in and form part of the law of the United Kingdom, subject to the Laid before Parliament in accordance with section [•] of the [European amendments and modifications described in Schedule 1 to this Order. Withdrawal Act] 20[•]] Coming into force in accordance with article [•] The [Treasury], in exercise of the powers conferred The [Treasury] are a government department on them by sections [•] of the [European Withdrawal designated for the purposes of section [•] of the Act] 20[•], hereby make the following Order:] [European Withdrawal Act] 20[•] in relation to financial services.

PART I GENERAL

01. CITATION 03. INTERPRETATION

This Order may be cited as the [European Withdrawal (1) In this Order— Act] 20[•] (Mutual Recognition Regulation) Order 20[•]. “Act” means the [European Withdrawal Act] 20[•]; 02. COMMENCEMENT “EU legislation” means any directive, (1) Except as provided by paragraph (2), this regulation or delegated act of the Order comes into force on the day on which European Union that is in effect prior to the section [•] of the Act comes into force. commencement of this Order;

(2) This Order comes into force— “FCA” means the Financial Conduct Authority; (a) for the purposes of [•], [•], and [•] on [•] 20[•]; and “PRA” means the Prudential Regulation Authority; (b) for the purposes of [•], [•], and [•] on such day as the [Treasury] may specify. “the Regulation” means Regulation (EU) No [•] of the European Parliament and of the Council on the recognition of the equivalence of third country financial services regimes;

[...] DRAFT UK IMPLEMENTATION OF THE EQUIVALENCE REGULATION OF THE EQUIVALENCE Appendix B DRAFT UK IMPLEMENTATION

88 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 89 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds 1. APPLICATION

01. The Regulation shall form part of and be incorporated into the law of the United Kingdom as amended in accordance with this Schedule. 2. AMENDMENTS

01. The recitals and articles of the Regulation are incorporated subject to the following amendments and modifications:

(a) All references in the Regulation to “To provide legal certainty to undertakings in the “Community” or “Union” are replaced by the United Kingdom and the relevant third country, words “United Kingdom”. orders adopted by the [Secretary of State] pursuant to this Article shall take effect one year (b) All references in the Regulation to a “third from the effective date that is specified in the Appendix B DRAFT UK IMPLEMENTATION OF THE EQUIVALENCE REGULATION country” shall mean any country apart from the relevant order.” United Kingdom. (j) The powers to pass delegated or implementing (c) All references in the Regulation to the legislation referred to in Articles 3(2), 4(4), 5(2), “European Commission” or “Commission” shall 7(3), 7(4), 10(9), 12(5), 13(9), 14, 15(2), 15(3), 15(4) AMENDMENTS AND have the meaning given to the words “European of the Regulation shall be construed as powers Commission” or “Commission” in the Act. for the Secretary of State to make orders for the purposes of those provisions, to the same extent MODIFICATIONS TO (d) All references in the Regulation to “European as is possible under those provisions. Council” or “Council” shall have the meaning given to the words “European Council” or “Council” in (k) Articles 16(3)-(5) of the Regulation are THE REGULATION the Act. deleted. (e) All references in the Regulation to “EBA” or (l) Article 17 of the Regulation is deleted. “European Banking Authority” are replaced by the Schedule I words “Prudential Regulation Authority”. (m) All references in the Regulation to other provisions or pieces of Union legislation shall, (f) All references in the Regulation to “EIOPA” or unless otherwise indicated in this Order, be “European Insurance and Occupational Pensions construed as references to the provision or piece of Authority” are replaced by the words “Pensions Union legislation as incorporated into the law of the Regulator”. United Kingdom [under section [•] of the European Withdrawal Act 20[•]] / [under orders made by the (g) All references in the Regulation to “ESMA” [Treasury] in exercise of the powers conferred by or “European Securities and Markets Authority” section [•] of the European Withdrawal Act 20[•] are replaced by the words “Financial Conduct and subject to any amendments or modifications Authority”. to such provisions or pieces of EU legislation contained in [the European Withdrawal Act 20[•]] (h) The words “in accordance with Article 218(6) / [the relevant order made by the [Treasury] in of the Treaty of the Functioning of the European exercise of the powers conferred by section [•] of Union” are deleted from Article 8(3) of the the European Withdrawal Act 20[•]]. Regulation. (n) All references to amounts denominated in (i) Article 14(5) of the Regulation is substituted by euros shall be construed as references to the the following: equivalent amount in pounds sterling.

90 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 91 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

02. The annexes of the Regulation are not subject to the amendments and modifications referred to in articles RELEVANT UNITED KINGDOM DESCRIPTION OF EFFECT OF AGREED ADDITIONAL 2(1)(a), (c) and (d) of this Schedule, and are incorporated under the law in the United Kingdom in the amended LEGISLATION EQUIVALENCE RECOGNITION IN THE UNITED KINGDOM EQUIVALENCE CRITERIA 73 forms set out below. 4. Financial Services and (a) Information requirements of the relevant third country which (i) The third country information Markets Act 2000 are applicable to issuers whose registered head office is situated requirements applicable to issuers Annex I of the Regulation is incorporated in the following amended form: in that third country (as described in a particular recognition with their registered head office (a) [General transparency decision or mutual recognition agreement and subject to any in that third country as referred to requirements] specific conditions) shall be treated under the law of the United in point (a) applicable to issuers in Kingdom as requirements that, by reason of the domestic that third country are equivalent to RELEVANT UNITED KINGDOM DESCRIPTION OF EFFECT OF AGREED ADDITIONAL law, regulations, administrative provisions, or of the practices the international standards set by LEGISLATION EQUIVALENCE RECOGNITION IN THE UNITED KINGDOM EQUIVALENCE CRITERIA or procedures based on the international standards set by international organisations which 1. Financial Services and (a) Prospectuses of issuers having their registered office in the (i) The third country’s legal or international organisations, the third country where the issuer is correspond to the information Markets Act 2000 relevant third country that have been drawn up in accordance supervisory regime, procedures or situated, ensure the equivalence of the information requirements requirements provided by the with national law or practices or procedures in that third country practices ensure that the third country applicable under, and for the purposes of, the transparency transparency rules. [Prospectus Directive (as described in a particular recognition decision or mutual prospectuses referred to in point (a) rules* (as described in a particular recognition decision or mutual – Equivalence of recognition agreement and subject to any specific conditions) are drawn up in an equivalent manner recognition agreement and subject to any specific conditions). prospectuses – Art. shall be treated under the law of the United Kingdom as third to international standards set up by * In this row the term ‘transparency rules’ means the transparency 20 country prospectuses drawn up in accordance with national international securities commission rules within the meaning of section 89A(5) of the Financial Services 20(3)] and Markets Act 2000. law, practices or procedures of a third country which may be organisations, including the IOSCO submitted for approval by the FCA in accordance with the disclosure standards. 5. Reports on Payments (a) Third-country reporting requirements applicable to (i) The legal and/or supervisory relevant provisions made in the prospectus rules for issuers * to Governments undertakings which are subject to the Reports on Payments regime, practices or procedures of incorporated in [non- EEA States]/[third countries] for approval Regulations 2014 to Government Regulations 2014 (as described in a particular the third country ensure that the of that document as a prospectus pursuant to section 84(6) of recognition decision or mutual recognition agreement and third country reporting requirements the Financial Services and Markets Act 2000 (as described in a [Country by country subject to any specific conditions) shall be treated under the law referred to in point (a) are equivalent particular recognition decision or mutual recognition agreement reporting] of the United Kingdom as equivalent reporting requirements* to the requirements of the Reports on and subject to any specific conditions). for the purposes of regulations 12 and 13 of the Reports on Payments to Governments Regulations * In this row the term «prospectus rules» means the prospectus rules Payments to Governments Regulations 2014 (as described in a 2014. within the meaning of section 73A(4) of the Financial Services and particular recognition decision or mutual recognition agreement Markets Act 2000. and subject to any specific conditions). 2. Financial Services (a) The generally accepted accounting standards of the relevant third (i) The third country ensures that the * In this row the term «equivalent reporting requirements» means and Markets Act country that have been applied to historic financial information prepared accounting standards applicable to the equivalent reporting requirements within the meaning of regulation by third country issuers (as described in a particular recognition decision 2(1) of the Reports on Payment to Governments Regulations 2014. 2000; Regulation historical financial information prepared or mutual recognition agreement and subject to any specific conditions) by issuers in that third country referred (EC) No 1569/2007 shall be treated under the law of the United Kingdom as [accounting 6. Regulation (EC) (a) Credit ratings related to entities established, or financial (i) The third country’s legal and/or to in point (a) are equivalent to the (as implemented by standards equivalent with IFRS adopted pursuant to Regulation No 1060/2009 (as instruments issued, in the relevant third country that are issued supervisory regime ensures that the 1606/2002 (as implemented by the Act)] / [accounting standards requirements applicable to financial by entities supervised in the relevant third country (as described third country entities referred to in the Act); Regulation statements referred to in Article 2 of implemented by the 1606/2002 (as equivalent with IFRS adopted pursuant to Regulation (EC) No 1126/2008 Act) in a particular recognition decision or mutual recognition point (a) are subject to binding rules (as implemented by the Act)] / [accounting standards equivalent with Regulation (EC) No 1569/2007 (as agreement and subject to any specific conditions) by entities equivalent to [those set out in Articles implemented by the the IFRS specified in any order made by the [Treasury] under the Act for implemented by the Act) / [IFRS authorised as, or to operate, a credit rating agency shall be 6 to 12 and Annex I of Regulation (EC) 22 [Credit Rating Act) the purposes of this provision]*, with the effect that such third country adopted pursuant to Regulation (EC) treated under the law of the United Kingdom as subject to a No 1060/2009 (as implemented by issuers shall be able to present their historical financial information Agencies: No 1126/2008 (as implemented by legal and supervisory framework of a third country in respect the Act), with the exception of Articles [Prospectuses – 3rd in accordance with the relevant third country’s generally accepted Equivalence] the Act)] / [accounting standards of which an equivalence decision has been adopted, as referred 6a, 6b, 8a, 8b, 8c and 11a, point (ba) of country GAAP with accounting standards for the purposes of the prospectus rules** (as equivalent with the IFRS specified in described in a particular recognition decision or mutual recognition to in Regulation (EC) No 1060/2009 (as implemented by the point 3 and points 3a and 3b of Section IFRS] any order made by the [Treasury]. agreement and subject to any specific conditions). Act), stating that the legal and supervisory framework of the B of Annex I of Regulation (EC) No relevant third country meets the relevant requirements of 1060/2009 (as implemented by the * NOTE: In some equivalence provisions it is not possible to confirm precisely how criteria for equivalence provisions which are prescribed Regulation (EC) No 1060/2009 (as implemented by the Act), Act)] / [those specified in any order under regulations or delegated regulations will be implemented into with the effect that such third country entities may apply for made by the [Treasury] under the Act UK law. Various options are therefore set out, including options for relevant requirements to be set by UK secondary legislation. certification pursuant to Regulation (EC) No 1060/2009 (as for the purposes of this provision]. implemented by the Act) (and subject to any specific conditions ** In this row the term «prospectus rules» means the prospectus under the particular recognition decision or mutual recognition (ii) The third country’s legal and/or rules within the meaning of section 73A(4) of the Financial Services regulatory regime applicable to the third and Markets Act 2000. agreement). country entities referred to in point (a) 3. Financial Services (a) Generally accepted accounting standards of the relevant (i) The third country ensures that the prevents interference by the supervisory and Markets Act third country used by issuers whose registered head office accounting standards applicable to the authorities and other public authorities of that third country with the content of 2000; Regulation is situated in that third country (as described in a particular third country entities referred to in point credit ratings and methodologies. (EC) No 1569/2007 recognition decision or mutual recognition agreement and (a) meet the requirements of [Article subject to any specific conditions) shall be treated under the 2 of Regulation (EC) No 1569/2007 (as implemented by (iii) A cooperation agreement is in place or law of the United Kingdom as accounting standards equivalent (as implemented by the Act)] / [IFRS will be put in place between the relevant the Act); Regulation to [IFRS adopted pursuant to Regulation (EC) No 1126/2006 adopted pursuant to Regulation (EC) third country and [FCA] specifying at (EC) No 1126/2006 (as implemented by the Act)] / [the IFRS specified in any order No 1126/2008 (as implemented by the least the matters [referred to in Regulation (as implemented by made by the [Treasury] under the Act for the purposes of this Act)] / [the IFRS specified in any order (EC) No 1060/2009 (as implemented by the Act) provision], with the effect that the third country accounting made by the [Treasury] under the Act the Act)] / [specified in any order made standards ensure the equivalence of information requirements for the purposes of this provision] in all by the [Treasury] under the Act for the [Transparency for the purposes of the transparency rules (as described in a equivalent respects. * purposes of this provision]. Directive: 3rd country particular recognition decision or mutual recognition agreement GAAP with IFRS, Art. and subject to any specific conditions). 7. Companies Act 2006 (a) The relevant competent authorities of specified third (i) The relevant third country authorities 23(4), Sub-para 3] * In this row the term «transparency rules» means the transparency countries (as described in a particular recognition decision have entered into or will enter into rules within the meaning of section 89A(5) of the Financial Services [Statutory Audit: or mutual recognition agreement and subject to any specific arrangements with the Secretary of and Markets Act 2000. Adequacy of audit conditions) shall be treated under the law of the United State in accordance with section 1253E framework: section Kingdom as approved third country competent authorities of the Companies Act 2006. 1253D] within the meaning of section 1253D(2) of the Companies Act 2006 (as described in a particular recognition decision DRAFT UK IMPLEMENTATION OF THE EQUIVALENCE REGULATION OF THE EQUIVALENCE Appendix B DRAFT UK IMPLEMENTATION 73 NOTE: The annexes of the Equivalence Regulation have been set out in amended form for ease of reference and due to the complex mapping process that or mutual recognition agreement and subject to any specific will be required to set out the UK’s own implementation of each of the equivalence recognition provisions contained in the Equivalence Regulation. conditions).

92 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 93 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

RELEVANT UNITED KINGDOM DESCRIPTION OF EFFECT OF AGREED ADDITIONAL RELEVANT UNITED KINGDOM DESCRIPTION OF EFFECT OF AGREED ADDITIONAL LEGISLATION EQUIVALENCE RECOGNITION IN THE UNITED KINGDOM EQUIVALENCE CRITERIA LEGISLATION EQUIVALENCE RECOGNITION IN THE UNITED KINGDOM EQUIVALENCE CRITERIA

8. Companies Act 2006 (a) Entities supervised in the relevant third country (as 11. Regulation (EU) (a) Requirements of the third country’s legal, supervisory (i) The third country’s legal, supervisory described in a particular recognition decision or mutual No 648/2012 (as and/or enforcement regime corresponding to any of the and/or supervisory regime applies [Statutory Audit: recognition agreement and subject to any specific conditions) implemented by the requirements laid down in Articles 4, 9, 10 and 11 of Regulation requirements which are equivalent Equivalence of audit and authorised as, or to operate as, an auditor shall be treated Act) (EU) No 648/2012 (as implemented by the Act) (as described to [any of those laid down in Articles framework: section under the law of the United Kingdom as persons which the in a particular recognition decision or mutual recognition 4, 9, 10 and 11 of Regulation (EU) No 1221(1)] Secretary of State has declared are to be regarded as holding [EMIR: transaction agreement and subject to any specific conditions) shall 648/2012 (as implemented by the Act)] an approved third country qualification pursuant to section requirements: Art. be treated under the law of the United Kingdom as legal, / [those specified in any order made 1221 of the Companies Act 2006 (as described in a particular 13] supervisory and enforcement arrangements in respect of by the [Treasury] under the Act for the recognition decision or mutual recognition agreement and which an implementing act as referred to in Article 13(2) of purposes of this provision]. subject to any specific conditions). Regulation (EU) No 648/2012 (as implemented by the Act) declaring that the requirements set out in Article 13(2) have (ii) The third country requirements 9. Regulation (EU) (a) Entities established in the relevant third country and been met, with the effect that, counterparties entering into referred to in point (i) are effectively No 648/2012 (as operating as a central bank or public body charged with or a transaction subject to Regulation (EU) No 648/2012 (as applied and enforced in an equitable and non-distortive manner so as to implemented by the intervening in the management of the public debt in that third implemented by the Act) shall be deemed to have fulfilled the ensure equivalent effective supervision Act) country (as described in a particular recognition decision or obligations [contained in Articles 4, 9, 10 and 11 of Regulation mutual recognition agreement and subject to any specific (EU) No 648/2012 (as implemented by the Act) where at least and enforcement in that third country. [EMIR: central bank conditions) shall be treated under the law of the United one of the counterparties is established in that third country, as exemption: Art. 1(6)] Kingdom as a third country entity [with respect to which a referred to in Article 13(3) of Regulation (EU) No 648/2012] / delegated act has been adopted pursuant to paragraph 6 of [specified in any order made by the [Treasury] under the Act Article 1 of Regulation (EU) No 648/2012 (as implemented by for the purposes of this provision] (as implemented by the Act) the Act), with the effect that the list set out in paragraph 4 of (as described in a particular recognition decision or mutual Article 1 of Regulation (EU) No 648/2012 (as implemented by recognition agreement and subject to any specific conditions). the Act) shall be regarded as being amended accordingly] / [to which Regulation (EU) No 648/2012 (as implemented by the 12. [Regulation (EU) (a) Entities supervised in the relevant third country (as (i) The third country’s legal and/or Act) does not apply]* (as described in a particular recognition No 648/2012 (as described in a particular recognition decision or mutual supervisory regime applies to the third decision or mutual recognition agreement and subject to any implemented by recognition agreement and subject to any specific conditions) country entities referred to in point (a) specific conditions). the Act)] [Financial and authorised as, or operating, a CCP shall be treated under requirements which are equivalent to the law of the United Kingdom as being subject to legal and [the requirements laid down in Title * NOTE: In some equivalence provisions there are various Services and structuring options relevant for the rights/entitlements that are supervisory arrangements in respect of which an implementing IV of Regulation (EU) No 648/2012 granted to the relevant third country entity after an equivalence Markets Act 2000; act, as referred to in Article 25(6) of Regulation (EU) No (as implemented by the Act)] / [the provision is granted. This is often due to the «benefit» of the equivalence provision (once granted) being rooted in an Financial Services 648/2012 (as implemented by the Act), determining that legal requirements specified in any order EU regulation for which there may not be a corresponding and Markets Act and supervisory arrangements in that third country ensure made by the [Treasury] under the Act UK implementing instrument (and so will presumably be grandfathered). 2000 (Recognition that a CCP authorised in that third country comply with legally for the purposes of this provision]. Requirements binding requirements which are equivalent to the recognition (ii) An appropriate cooperation 10. [Regulation (EU) (a) Entities supervised in the relevant third country (as (i) The third country’s legal and/or for Investment requirements laid down in Title IV of Regulation (EU) No mechanism has been established No 648/2012 (as described in a particular recognition decision or mutual supervisory regime applies to the Exchanges and 648/2012 (as implemented by the Act), that CCPs are subject recognition agreement and subject to any specific conditions) third-country entities referred to in to effective supervision and enforcement in that third country or will be established between the implemented by the Clearing Houses) relevant competent authorities of the Act)] / [Financial and authorised as, or to operate, a regulated market shall be point (a) binding requirements which Regulations 2001] on an ongoing basis, and that the legal framework of that treated under the law of the United Kingdom as [third-country are equivalent to [Title III of Directive third country provides for an effective equivalent system for third country and the [FCA] which Services and specifies, at least, the matters referred markets subject to legally binding requirements in respect 2004/39/EC] / [the requirements [EMIR: CCPs: Art. the recognition of CCPs authorised under third-country legal Markets Act 2000; to in [Article 7(a) to 7(d) of Regulation of which an implementing act, as referred to in Article 2a of specified in any order made by the 25(6)] regimes, with the effect that [such third country entities are Financial Services Regulation (EU) No 648/2012 (as implemented by the Act), [Treasury] under the Act for the treated under the law of the United Kingdom as third country (EU) No 648/2012 (as implemented and Markets Act determining that such requirements are equivalent to the purposes of this provision] / [the central counterparties pursuant to section 285(1)(d) of the by the Act)] / [any order made by 2000 (Recognition requirements laid down in Title III of Directive 2004/39/EC] / recognition requirements laid down in Financial Services and Markets Act 2000] / [such third country the [Treasury] under the Act for the Requirements [third country markets subject to requirements equivalent to regulation 4 of the Financial Services entities are able to apply to the Bank of England for recognition purposes of this provision]. for Investment the requirements specified in any order made by the [Treasury] and Markets Act 2000 (Recognition to provide certain clearing services or activities in the United Exchanges and under the Act for the purposes of this provision and such Requirements for Investment Exchanges Kingdom as a recognised central counterparty pursuant to Clearing Houses) third country entities are subject to effective supervision and and Clearing Houses) Regulations section 288(1) of the Financial Services and Markets Act 2000] Regulations enforcement in that third country on an ongoing basis] / [third 2001/995 applicable to bodies in / [as having satisfied the recognition requirements applicable country markets subject to requirements equivalent to the respect of which a recognition order has to clearing houses pursuant to Parts III and IV of the schedule 2001/995] recognition requirements contained in the Financial Services and been made under section 290(1)(a) of to the Financial Services and Markets Act 2000 (Recognition [EMIR: regulated Markets Act 2000 (Recognition Requirements for Investment the Financial Services and Markets Act Requirements for Investment Exchanges and Clearing Houses) markets] Exchanges and Clearing Houses) Regulations 2001/995 2000]. Regulations 2001 and may accordingly apply to the Bank of applicable to bodies seeking a recognition under section 287 England for recognition pursuant to section 288(1A) of the of the Financial Services and Markets Act 2000 and regulation Financial Services and Markets Act 2000] (as described in a 4 of the Financial Services and Markets Act 2000 (Recognition particular recognition decision or mutual recognition agreement Requirements for Investment Exchanges and Clearing Houses) and subject to any specific conditions). Regulations 2001/995], with the effect that such third country markets are considered to be equivalent to a regulated market for the purposes of the definition of OTC derivatives pursuant to Article 2a(1) of Regulation (EU) No 648/2012 (as implemented by the Act) (as described in a particular recognition decision or mutual recognition agreement). DRAFT UK IMPLEMENTATION OF THE EQUIVALENCE REGULATION OF THE EQUIVALENCE Appendix B DRAFT UK IMPLEMENTATION

94 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 95 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

RELEVANT UNITED KINGDOM DESCRIPTION OF EFFECT OF AGREED ADDITIONAL RELEVANT UNITED KINGDOM DESCRIPTION OF EFFECT OF AGREED ADDITIONAL LEGISLATION EQUIVALENCE RECOGNITION IN THE UNITED KINGDOM EQUIVALENCE CRITERIA LEGISLATION EQUIVALENCE RECOGNITION IN THE UNITED KINGDOM EQUIVALENCE CRITERIA

13. Regulation (EU) (a) Entities supervised in the relevant third country (as (i) The third country’s legal or 14. Regulation (EU) (a) Entities supervised in a third country (as described in a (i) The third country’s legal and/or No 648/2012 (as described in a particular recognition decision or mutual supervisory regime applies to the third No 909/2014 (as particular recognition decision or mutual recognition agreement supervisory regime applies to the third implemented by the recognition agreement and subject to any specific conditions) country entities referred to in point (a) implemented by the and subject to any specific conditions) and authorised as, country entities referred to in point (a) Act) and authorised as, or operating, a trade repository shall be equivalent requirements as those laid Act) or operating, a central securities depository shall be treated requirements which ensure that the third treated under the law of the United Kingdom as [being subject down in [Regulation (EU) No 648/2012 under the law of the United Kingdom as [being subject to country entities referred to in point (a) [EMIR: trade to legal and supervisory arrangements in respect of which an (as implemented by the Act)] / [any [CSDR: Art. 25(9)] legal and supervisory arrangements in respect of which an are subject to effective authorisation, repositories: Art. 75] implementing act, as referred to in Article 75(1) of Regulation order made by the [Treasury] under the implementing act has been adopted, as referred to in Article supervision and oversight or, if the (EU) No 648/2012 (as implemented by the Act), determining Act for the purposes of this provision]. 25(9) of Regulation (EU) No 909/2014 (as implemented by the securities settlement system is operated that the legal and supervisory arrangements of the third country Act) (notwithstanding the effect of Article 69(3) of Regulation by a central bank, oversight, ensuring meet the conditions at Articles 75(1)(a) to 75(1)(c) of Regulation (ii) A cooperation agreement is in (EU) No 909/2014 (as implemented by the Act)), determining full compliance with the prudential (EU) No 648/2012 (as implemented by the Act), with the effect place or will be in place between the that the legal and supervisory arrangements of the third country requirements applicable in that third that such third country entities may apply for recognition by the United Kingdom and the relevant ensure that CSDs authorised in that third country comply with country. [FCA], as referred to in Articles 77(1) and 77(2) of Regulation third country authorities providing for legally binding requirements equivalent to the requirements laid (EU) 2015/2365 (as implemented by the Act)] / [having the the access described in [Article 75(2) down in Regulation (EU) No 909/2014 (as implemented by the (ii) The third country’s legal and/or same rights as trade repositories registered with the [FCA] of Regulation (EU) No 648/2012 (as Act), that CSDs are subject to effective supervision, oversight supervisory regime ensures that the pursuant to Chapter I of Title VI of Regulation (EU) No 648/2012 implemented by the Act)] / [any order and enforcement in that third country on an ongoing basis third country entities referred to in (as implemented by the Act)] (as described in a particular made by the [Treasury] under the Act and that the legal framework of that third country provides point (a) comply with requirements recognition decision or mutual recognition agreement and for the purposes of this provision], for an effective equivalent system for the recognition of CSDs which are in effect equivalent to the subject to any specific conditions). and specifying, at least the matters authorised under third-country legal regimes, with the effect requirements[laid down in Regulation listed in [Article 75(3)(a) and 75(3)(b) that (notwithstanding the effect of Article 69(3) of Regulation (EU) No 909/2014 (as implemented of Regulation (EU) No 648/2012 (as (EU) No 909/2014) (as implemented by the Act) such third by the Act)] / [specified in any order implemented by the Act)] / [any order country entities able to apply to the [FCA] for recognition as made by the [Treasury] under the Act made by the [Treasury] under the Act referred to in Article 25(2) of Regulation (EU) No 909/2014 (as for the purposes of this provision], taking for the purposes of this provision]. implemented by the Act), and be recognised as able to provide into account the internationally agreed the services (including by establishing a branch in the United CPSS-IOSCO standards so far as they do Kingdom) referred to in Article 25(2) of Regulation (EU) No not conflict with [Regulation (EU) No 909/2014 (as implemented by the Act)] / [having the same 909/2014 (as implemented by the Act)] rights as a CSD authorised by the [FCA] pursuant to Article 18(1) / [any requirements specified in any (and, if relevant, Article 54) of Regulation (EU) No 909/2014 order made by the [Treasury] under the Act for the purposes of this provision]. (and able to provide the relevant services* in the United Kingdom that it is authorised to in the relevant third country] (iii) The third country’s legal or (as described in a particular recognition decision or mutual supervisory regime provides for an recognition agreement and subject to any specific conditions). effective equivalent system for the * In this row the term ‘relevant services’ means [the core recognition of CSDs authorised under services listed in the Annex of Regulation (EU) No 909/2014 (as third-country legal regimes. implemented by the Act)] / [the services specified in any order made by the Treasury under the Act for the purposes of this (iv) The third country entities referred provision. to in point (a) are permitted under the legal regime of the third country, if necessary, to take the necessary measures to allow their users to comply with provisions of the law of the United Kingdom to provide central securities depository services, including the law [referred to in the second subparagraph of Article 49(1) of Regulation (EU) No 909/2014 (as implemented by the Act)] / [of the United Kingdom]. (v) (v) A cooperation agreement is in place or will be put in place with the responsible third-country authorities meeting [the requirements, at least, of Article 25(7) and Articles 25(10) of Regulation (EU) No 909/2014 (as implemented by the Act)] / [requirements, at least, specified any order made by the [Treasury] under the Act for the purposes of this provision]. DRAFT UK IMPLEMENTATION OF THE EQUIVALENCE REGULATION OF THE EQUIVALENCE Appendix B DRAFT UK IMPLEMENTATION

96 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 97 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

RELEVANT UNITED KINGDOM DESCRIPTION OF EFFECT OF AGREED ADDITIONAL RELEVANT UNITED KINGDOM DESCRIPTION OF EFFECT OF AGREED ADDITIONAL LEGISLATION EQUIVALENCE RECOGNITION IN THE UNITED KINGDOM EQUIVALENCE CRITERIA LEGISLATION EQUIVALENCE RECOGNITION IN THE UNITED KINGDOM EQUIVALENCE CRITERIA

15. Regulation (EU) (a) Entities established in the relevant third country and 17. Regulation (EU) (a) The legal, supervisory and/or enforcement arrangements of (i) The legal, supervisory and/or 2015/2365 (as operating as a central bank or public body charged with or 2015/2365 (as the relevant third country corresponding to the requirements enforcement arrangements of the implemented by the intervening in the management of public debt in that third implemented by the laid down in Article 4 of Regulation (EU) 2015/2365 (as third country referred to in point (a) Act) country (as described in a particular recognition decision or Act) implemented by the Act) (as described in a particular are equivalent to the requirements laid mutual recognition agreement and subject to any specific recognition decision or mutual recognition agreement and down in [Article 4 of Regulation (EU) [SFTR: central banks: conditions) shall be treated under the law of the United [SFTR: transaction subject to any specific conditions) shall be treated under the 2015/2365 (as implemented by the Art. 2(4)] Kingdom as [a third country entity with respect to which a requirements: Art. law of the United Kingdom as arrangements in respect of Act)] / [specified in any order made delegated act has been adopted pursuant to paragraph 4 of 21] which an implementing act has been adopted, as referred to by the [Treasury] under the Act for the Article 2 of Regulation (EU) 2015/2365 (as implemented by in Article 21(1) of Regulation (EU) 2015/2365 (as implemented purposes of this provision]. the Act), with the effect that the list set out in paragraph 2 of by the Act), determining that the legal, supervisory and/or Article 2 of Regulation (EU) 2015/2365 (as implemented by the enforcement arrangements of that third country satisfy the (ii) The legal, supervisory and/or Act) shall be treated as if it had been amended accordingly] / requirements set out in Article 21(1)(a) to (b) of Regulation enforcement arrangements of the third [third country entities to which Articles 4 and 14 of Regulation (EU) 2015/2365 (as implemented by the Act), with the effect country referred to in point (a) ensure (EU) 2015/2365 (as implemented by the Act) do not apply] that where counterparties enter into a transaction subject to that the entities [referred to in Article (as described in a particular recognition decision or mutual Regulation (EU) 2015/2365 (as implemented by the Act) and 12(2) of Regulation (EU) 2015/2365 recognition agreement and subject to any specific conditions). at least one of the counterparties is established in the relevant (as implemented by the Act) have third country and the counterparties have complied with the either direct access to the details on 16. Regulation (EU) (a) Entities supervised in the relevant third country (as (i) The third country’s legal or obligations of that third country in relation to that transaction, securities financing transactions data 2015/2365 (as described in a particular recognition decision or mutual supervisory regime applies to the third the counterparties to the transaction shall be deemed to have pursuant to Article 19(1) of Regulation (EU) 2015/2365 (as implemented by implemented by the recognition agreement and subject to any specific conditions) country entities referred to in point (a) fulfilled the requirements [laid down in Article 4 of Regulation the Act) or indirect access to the details Act) and authorised as, or operating, a trade repository shall be equivalent requirements as those [laid (EU) 2015/2365 (as implemented by the Act), as referred to in treated under the law of the United Kingdom as [being subject down in Regulation (EU) 2015/2365 (as Article 21(2) of Regulation (EU) 2015/2365 (as implemented by on securities financing transactions [SFTR: trade to legal and supervisory arrangements in respect of which an implemented by the Act)] / [specified the Act)] / [specified in any order made by the [Treasury] under pursuant to Article 20 of Regulation(EU) repositories: Art. 19] implementing act has been adopted, as referred to in Article in any order made by the [Treasury] the Act for the purposes of this provision] (as described in a 2015/2365 (as implemented by the 19(1) of Regulation (EU) 2015/2365 (as implemented by the under the Act for the purposes of this particular recognition decision or mutual recognition agreement Act)] / [specified in any order made Act), determining that the legal and supervisory arrangements provision]. and subject to any specific conditions). by the [Treasury] under the Act for the of the third country meet the conditions at Articles 19(1)(a) purposes of this provision]. to (d) of Regulation (EU) 2015/2365 (as implemented by the (ii) The third country’s legal or Act), with the effect that such third country entities may apply supervisory regime applies to the third 18. [Regulation (EU) (a) Entities authorised in the relevant third country (as (i) The third country entities referred to the [FCA] for recognition as a trade repository, as referred country entities referred to in point 2016/1011 (as described in a particular recognition decision or mutual to in point (a) are subject to a legal to in Articles 19(3) and 19(4) of Regulation (EU) 2015/2365 (a) legally binding and enforceable implemented by the recognition agreement and subject to any specific conditions) framework and supervisory practice (as implemented by the Act)] / [having the same rights as a obligations under the legal regime of Act)] / [Financial and authorised as, or operating, a benchmark administrator which ensures compliance with the third country to give direct and in the third country shall be treated under the law of the the IOSCO principles for financial trade repository registered by the [FCA] pursuant to Article 5 Services and Markets immediate access to trade repository United Kingdom as [entities and benchmarks subject to a benchmarks, or where applicable, with of Regulation (EU) 2015/2365 (as implemented by the Act)] Act 2000] (as described in a particular recognition decision or mutual data to the relevant authorities referred third country’s legal framework and supervisory practice in the IOSCO principles for PRAs. to in [Article 12(2) of Regulation respect of which an implementing decision has been adopted, recognition agreement and subject to any specific conditions). [Benchmarks: (ii)A cooperation agreement is in place (EU) 2015/2365 (as implemented Requirements as referred to in Article 30(2) of Regulation (EU) 2016/1011 (as by the Act)] / [any order made by implemented by the Act), stating that the legal framework or will be put in place with the relevant for benchmark the [Treasury] under the Act for the and supervisory practice of that third country meets the third country competent authorities purposes of this provision]. administrators: Art. requirements listed in Article 30(2)(a) and (b) of Regulation specifying at least the matters 30(2)] (EU) 2016/1011 (as implemented by the Act)] / [entities with the [listed in Article 30(4)(a) to 30(4) (iii) The relevant recognition decision or same rights as persons authorised to carry out the regulated (c) of Regulation (EU) 2016/1011 (as mutual recognition agreement specifies activities contained in article 63O of the Financial Services and implemented by the Act)] / [specified the relevant third-country authorities Markets Act 2000 (Regulated Activities) Order 2001] / [having in any order made by the [Treasury] that are entitled to access data on SFTs the same rights as an administrator authorised and registered under the Act for the purposes of this held in trade repositories established in by the [FCA] pursuant to Title VI of Regulation (EU) 2016/1011 provision]. the United Kingdom. (as implemented by the Act)] (as described in a particular (iv) Cooperation arrangements are in recognition decision or mutual recognition agreement and place or will be put in place between subject to any specific conditions). the United Kingdom and the relevant third country authorities specifying, at least the matters [listed at Article 19(5) (b)(i) and 19(5)(b)(ii) of Regulation (EU) 2015/2365 (as implemented by the Act)] / [specified in any order made by the [Treasury] under the Act for the purposes of this provision]. DRAFT UK IMPLEMENTATION OF THE EQUIVALENCE REGULATION OF THE EQUIVALENCE Appendix B DRAFT UK IMPLEMENTATION

98 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 99 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

RELEVANT UNITED KINGDOM DESCRIPTION OF EFFECT OF AGREED ADDITIONAL RELEVANT UNITED KINGDOM DESCRIPTION OF EFFECT OF AGREED ADDITIONAL LEGISLATION EQUIVALENCE RECOGNITION IN THE UNITED KINGDOM EQUIVALENCE CRITERIA LEGISLATION EQUIVALENCE RECOGNITION IN THE UNITED KINGDOM EQUIVALENCE CRITERIA

19. [Regulation (EU) (a) Specific entities authorised as, or to operate, a benchmark (i) The specific third country entities, 21. Regulation (EU) (a) Public bodies and/or central banks established in the 2016/1011 (as administrator or benchmarks or families of benchmarks benchmarks or families of benchmarks No 596/2014 (as relevant third country (as described in a particular recognition implemented by the (as described in a particular recognition decision or mutual referred to in point (i) are subject to implemented by the decision or mutual recognition agreement and subject to any Act)] / recognition agreement and subject to any specific conditions) a legal framework and/or supervisory Act) specific conditions) shall be treated under the law of the United that are subject to specific binding requirements in the relevant practice which ensures compliance Kingdom as [third country public bodies and central banks in [Financial Services third country shall be treated under the law of the United with the IOSCO principles for financial [MAR: Exemption for respect of which a delegated act, as referred to in Article 6(5) and Markets Act Kingdom as [specific administrators or specific benchmarks or benchmarks or, where applicable, with monetary and public of Regulation (EU) No 596/2014 (as implemented by the Act), 2000] [Benchmarks: families of benchmarks subject to binding requirements in that the IOSCO principles for PRAs. debt management with the effect that the exemption referred to in Article 6(1) Requirements third country in respect of which an implementing decision has activities: Art. 6(5)] of Regulation (EU) 596/2014 (as implemented by the Act) is been adopted, as referred to in Article 30(3) of Regulation (EU) (ii) A cooperation agreement is in extended to those third country public bodies and/or central for benchmark 2016/1011 (as implemented by the Act), stating that the binding place or will be put in place with the banks] / [third country public bodies and/or central banks administrators: Art. requirements in that third country meet the requirements of relevant third country competent which are not subject to Regulation (EU) No 596/2014 (as 30(3)] Article 30(3)(a) of Regulation (EU) 2016/1011 (as implemented authorities specifying [at least the implemented by the Act) / [the requirements specified in any by the Act) and that such specific administrators or specific matters listed in Article 30(4)(a) to order made by the [Treasury] under the Act for the purposes of benchmarks or families of benchmarks are subject to 30(4)(c) of Regulation (EU) 2016/1011 this provision]] (as described in a particular recognition decision supervision and enforcement meeting the requirements of (as implemented by the Act)] / [at least or mutual recognition agreement and subject to any specific Article 30(3)(b) of Regulation (EU) 2016/1011 (as implemented the matters specified in any order made conditions). by the Act)] / [entities (or benchmarks or families of by the [Treasury] under the Act for the benchmarks administered by entities) with the same rights purposes of this provision]. 22. Regulation (EU) (a) Public bodies established in the relevant third country (i) The third country has entered into as persons authorised to carry out the regulated activities No 596/2014 (as (as described in a particular recognition decision or mutual or will enter into an agreement with contained in Article 63O of the Financial Services and Markets implemented by the recognition agreement and subject to any specific conditions) the United Kingdom [pursuant to Act 2000 (Regulated Activities) Order 2001 (as described Act) shall be treated under the law of the United Kingdom as [third Article 25 of Directive 2003/87/EC (as in a particular recognition decision or mutual recognition country public bodies in respect of which a delegated act has implemented by the Act] / [meeting agreement and subject to any specific conditions)] / [entities [MAR: Climate been adopted, as referred to in Article 6(6) of Regulation (EU) the requirements specified in any order (and benchmarks or families of benchmarks administered by policy/emissions: Art. No 596/2014 (as implemented by the Act), with the effect that made by the [Treasury] under the Act entities) having the same rights as an administrator authorised 6(6)] the exemption referred to in Article 6(3) of Regulation (EU) No for the purposes of this provision]. and registered by the [FCA] pursuant to Title VI of Regulation 596/2014 (as implemented by the Act) is extended to such third (EU) 2016/1011 (as implemented by the Act)] (as described in a country public bodies] / [public bodies which are not subject particular recognition decision or mutual recognition agreement to Regulation (EU) No 596/2014 (as implemented by the Act) / and subject to any specific conditions). [the requirements specified in any order made by the [Treasury] under the Act for the purposes of this provision]] (as described 20. Regulation (EU) (a) Entities supervised in the relevant third county (as described (i) The third country’s legal and/ in a particular recognition decision or mutual recognition No 236/2012 (as in a particular recognition decision or mutual recognition or supervisory regime applies to agreement and subject to any specific conditions). implemented by the agreement and subject to any specific conditions) and the entities referred to in point (a) 23. Regulation (EU) (a) Entities established in the relevant third country and Act) authorised as, or operating, a market, shall be treated under equivalent requirements which ensure the law of the United Kingdom as [subject to legally binding that the third country entities referred to No 600/2014 (as operating as a central bank in that third country (as described [Short selling: market requirements in respect of which a decision, as referred to in in point (a) have clear and transparent implemented by the in a particular recognition decision or mutual recognition makers: Art. 17(2)] Article 17(2) of Regulation (EU) 236/2012 (as implemented by rules regarding the admission of Act) agreement and subject to any specific conditions) shall be the Act), determining that the legal and supervisory framework securities to trading so that such treated under the law of the United Kingdom as [a third country of the third country, for the purposes of the exemption set out securities are capable of being traded in [MiFIR: Central entity with respect to which a delegated act has been adopted in Article 17(1) of Regulation (EU) No 236/2012 (as implemented a fair, orderly and efficient manner, and banks: Art. 1(9)] to extend the scope of paragraph 6 of Article 1 of Regulation by the Act), is equivalent to the requirements under Title III of are freely negotiable. (EU) No 600/2014 (as implemented by the Act), as referred Directive 2004/39/EC, under Directive 2003/6/EC and under to in paragraph 9 of Article 1 of Regulation (EU) No 600/2014 Directive 2004/109/EC] / [entities which are not subject to (ii) The third country’s legal and/ (as implemented by the Act), with the effect that the scope of [Articles 5, 6, 7, 12, 13 and 14 of Regulation (EU) No 236/2012 (as or supervisory regime applies to paragraph 6 of Article 1 of Regulation (EU) No 600/2014 (as implemented by the Act)] / [the requirements specified in any the entities referred to in point (a) implemented by the Act) shall be extended accordingly] / [third order made by the [Treasury] under the Act for the purposes of equivalent requirements which ensure country entities which are not subject to [the requirements of this provision]] (as described in a particular recognition decision a high level of investor protection by Articles 8, 10, 18 and 21 of Regulation (EU) No 600/2014 (as or mutual recognition agreement and subject to any specific subjecting security issuers to periodic implemented by the Act] / [the requirements specified in any conditions). and ongoing information requirements. order made by the [Treasury] under the Act for the purposes of this provision] (as described in a particular recognition decision (iii) The third country’s legal regime or mutual recognition agreement and subject to any specific applies to the entities referred to in conditions). point (a) equivalent requirements which ensure market transparency and integrity by preventing market abuse in the form of insider dealing and market manipulation. DRAFT UK IMPLEMENTATION OF THE EQUIVALENCE REGULATION OF THE EQUIVALENCE Appendix B DRAFT UK IMPLEMENTATION

100 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 101 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

RELEVANT UNITED KINGDOM DESCRIPTION OF EFFECT OF AGREED ADDITIONAL RELEVANT UNITED KINGDOM DESCRIPTION OF EFFECT OF AGREED ADDITIONAL LEGISLATION EQUIVALENCE RECOGNITION IN THE UNITED KINGDOM EQUIVALENCE CRITERIA LEGISLATION EQUIVALENCE RECOGNITION IN THE UNITED KINGDOM EQUIVALENCE CRITERIA

24. [Directive 2014/65/ (a) Entities supervised in the relevant third country (as (i) The third country’s legal and/or 26. Regulation (EU) (a) Certain requirements of the third country’s legal or (i) The third country’s legal and/ EU (as implemented described in a particular recognition decision or mutual supervisory regime applies to the third No 600/2014 (as supervisory regime corresponding to the requirements laid or supervisory regime requirements by the Act),] recognition agreement and subject to any specific conditions) country entities referred to in point (a) implemented by the down in Articles 28 and 29 of Regulation (EU) No 600/2014 referred to in point (a) are equivalent Regulation (EU) and authorised as, or to operate, a regulated market shall be equivalent standards which ensure that Act) (as implemented by the Act) (as described in a particular to those laid down in Articles 28 and treated under the law of the United Kingdom [as being subject such entities have clear and transparent recognition decision or mutual recognition agreement and 29 of Regulation (EU) No 600/2014 (as No 600/2014 (as to a legal and supervisory framework of a third country in rules regarding the admission of [MiFID/MiFIR: subject to any specific conditions) shall be treated under the law implemented by the Act). implemented by the respect of an equivalence decision that has been adopted as securities to trading so that such derivatives: trade of the United Kingdom as legal, supervisory and enforcement Act) referred to in the third and fourth subparagraphs of Article securities are capable of being traded in arrangements in respect of which an implementing act has been (ii) The third country requirements execution and referred to in point (a) are effectively [MiFIR/MiFID: 25(4)(a) of Directive 2014/65/EU (as implemented by the Act) a fair, orderly and efficient manner, and clearing obligations: adopted, as referred to in Article 33(2) of Regulation (EU) No stating that a regulated market in that third country complies are freely negotiable. 600/2014 (as implemented by the Act), with the effect that applied and enforced in an equitable Trading venues Art. 33] with legally binding requirements which are equivalent to the counterparties entering into a transaction subject to Regulation and non-distortive manner so as to trading obligation: requirements resulting from Regulation (EU) No 596/2014 (as (ii) The third country’s legal and/ (EU) No 600/2014 (as implemented by the Act) shall be ensure equivalent effective supervision financial instruments: implemented by the Act), from Title III of Directive 2014/65/EU or supervisory regime applies to deemed to have fulfilled the obligations contained in Articles 28 and enforcement in that third country. Art. 23 MiFIR/25(4) (as implemented by the Act), from Title II of Regulation (EU) the entities referred to in point (a) and 29 of Regulation (EU) No 600/2014 (as implemented by (a) MiFID] No 600/2014 (as implemented by the Act) and from Directive equivalent requirements which ensure the Act) where at least one of the counterparties is established 2004/109/EC (as implemented by the Act), and regulated that security issuers are subject to in that third country, as referred to in Article 33(3) of Regulation markets in that third country are subject to effective supervision periodic and ongoing information (EU) No 600/2014 (as implemented by the Act), and the and enforcement] / [as being equivalent third-country trading requirements ensuring a high level of counterparties are in compliance with those legal, supervisory venues for the purposes of Article 23(1) of Regulation (EU) investor protection. and enforcement arrangements of the relevant third country No 600/2014 (as implemented by the Act)] (as described in a (iii) The third country’s legal and/ (as described in a particular recognition decision or mutual particular recognition decision or mutual recognition agreement or supervisory regime applies to recognition agreement and subject to any specific conditions). and subject to any specific conditions). the entities referred to in point (a) (a) The third country entities referred to in row 25 of this table (i) The third country’s legal and/or equivalent requirements which ensure 27. Regulation (EU) No shall (where that row is included as an agreed equivalence supervisory framework meets the market transparency and integrity by 600/2014 recognition and subject to any specific conditions) be treated requirements [of Article 38(3) of the prevention of market abuse in the [MiFIR: trading under the law of the United Kingdom as third country trading Regulation (EU) No 600/2014 (as form of insider dealing and market venues subject to a legal and supervisory framework in respect implemented by the Act] / [specified manipulation. venues for the purposes of clearing of which a decision has been adopted, as referred to in Article in any order made by the [Treasury] 25. [Directive 2014/65/ (a) Entities supervised in the relevant third country (as (i) The third country’s legal and/ access: Art. 38(1)- 38(3) of Regulation (EU) No 600/2014 (as implemented by the under the Act for the purposes of this EU (as implemented described in a particular recognition decision or mutual or supervisory regime provides for (3)] Act), stating that the legal and supervisory framework of the provision]. third country is considered to provide for an effective equivalent by the Act,] recognition agreement and subject to any specific conditions) an effective equivalent system for system for permitting CCPs and trading venues authorised Regulation (EU) and authorised as, or to operate, a trading venue shall be the recognition of trading venues treated under the law of the United Kingdom as [being subject authorised under Directive 2014/65/EU under foreign regimes access to CCPs and trading venues in No 600/2014 (as to legally binding requirements in respect of a decision that (as implemented by the Act) to admit that third country, with the effect that such third country trading implemented by the has been adopted, as referred to in Article 28(4) of Regulation to trading or trade derivatives declared venues are able to make use of [the access rights in Articles Act) (EU) 600/2014 (as implemented by the Act), determining that subject to a trading obligation in that 35 to 36 of Regulation (EU) No 600/2014 (as implemented by the Act), as referred to in Article 38(1) of Regulation (EU) [MiFIR: Trading those requirements are equivalent to the requirements for the third country on a non-exclusive basis. trading venues referred to in paragraph 1(a), (b) or (c) of Article No 600/2014 (as implemented by the Act)] / [access rights venues trading 28(4) of Regulation (EU) 600/2014 (as implemented by the (ii) The third country’s legal and/or specified in any order made by the [Treasury] under the Act obligation: financial Act), resulting from Regulation (EU) 600/2014 (as implemented supervisory regime applies to the third for the purposes of this provision] (as described in a particular instruments: Art. by the Act), Directive 2014/65/EU (as implemented by the country entities referred to in point (a) recognition decision or mutual recognition agreement and 28(4) MiFIR] Act), and Regulation (EU) No 596/2014 (as implemented by equivalent standards which ensure that subject to any specific conditions). the Act), and such third country entities are subject to effective such entities have clear and transparent (a) The third country entities referred to in row 12 of this table (i) The third country’s legal and/ supervision and enforcement in the third country] / [being rules regarding the admission of 28. Regulation (EU) shall (where that row is included as an agreed equivalence or supervisory framework meets equivalent third-country trading venues for the purposes of financial instruments to trading so No 600/2014 (as recognition and subject to any specific conditions) be treated [the requirements of Article 38(3) Article 28(1)(d) of Regulation (EU) 600/2014 (as implemented that such financial instruments are implemented by the under the law of the United Kingdom as third country CCPs of Regulation (EU) No 600/2014 by the Act)] (as described in a particular recognition decision capable of being traded in a fair, orderly Act) subject to a legal and supervisory framework in respect of which (as implemented by the Act)] / or mutual recognition agreement and subject to any specific and efficient manner, and are freely a decision has been adopted, as referred to in Article 38(3) of [requirements specified by any order conditions). negotiable. [MiFIR: trading venues for the Regulation (EU) No 600/2014 (as implemented by the Act), made by the [Treasury] under the Act (iii) The third country’s legal and/ determining that the legal and supervisory framework of the for the purposes of this provision]. or supervisory regime applies to purposes of clearing access: Art. 38(1)- third country is considered to provide for an effective equivalent the entities referred to in point (a) system for permitting CCPs and trading venues authorised (3)] equivalent requirements which ensure under foreign regimes access to CCPs and trading venues in that issuers of financial instruments that third country, with the effect that such third country CCPs are subject to periodic and ongoing are able to make use of the [access rights in Articles 35 to 36 information requirements ensuring a of Regulation (EU) No 600/2014 (as implemented by the Act), high level of investor protection. as referred to in Article 38(1) of Regulation (EU) No 600/2014 (iv) The third country’s legal or (as implemented by the Act)] / [access rights specified in any supervisory regime applies to the order made by the [Treasury] under the Act for the purposes of entities referred to in point (a) this provision] (as described in a particular recognition decision equivalent requirements which ensure or mutual recognition agreement and subject to any specific market transparency and integrity by conditions). the prevention of market abuse in the form of insider dealing and market manipulation. DRAFT UK IMPLEMENTATION OF THE EQUIVALENCE REGULATION OF THE EQUIVALENCE Appendix B DRAFT UK IMPLEMENTATION

102 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 103 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

RELEVANT UNITED KINGDOM DESCRIPTION OF EFFECT OF AGREED ADDITIONAL RELEVANT UNITED KINGDOM DESCRIPTION OF EFFECT OF AGREED ADDITIONAL LEGISLATION EQUIVALENCE RECOGNITION IN THE UNITED KINGDOM EQUIVALENCE CRITERIA LEGISLATION EQUIVALENCE RECOGNITION IN THE UNITED KINGDOM EQUIVALENCE CRITERIA

29. Regulation (EU) (a) Entities established in the relevant third country and (i) The third country’s legal and/ 31. Regulation (EU) (a) Entities supervised in the relevant third country (as No 600/2014 (as authorised as, or to operate, a CCP or trading venue (as or supervisory framework meets No 575/2013 (as described in a particular recognition decision or mutual implemented by the described in a particular recognition decision or mutual [the requirements of Article 38(3) implemented by the recognition agreement and subject to any specific conditions) Act) recognition agreement and subject to any specific conditions) of Regulation (EU) No 600/2014 Act) and authorised as, or operating, a third-country investment firm, shall be treated under the law of the United Kingdom as (as implemented by the Act)] / [the third country credit institutions, or third country clearing houses [MiFIR: trading third country CCPs and trading venues subject to a legal and requirements specified in any order [CRR: Credit or exchanges shall be treated under the law of the United venues for the supervisory framework in respect of which a decision has been made by the [Treasury] under the Act institutions, Kingdom as [entities subject to prudential supervisory and purposes of clearing adopted under Article 38(3) of Regulation (EU) No 600/2014 for the purposes of this provision]. investment firms: Art. regulatory requirements in that third country with respect to a access: Art. 38(1)- (as implemented by the Act), with the effect that such third 107(4)] decision has been adopted, by way of an implementing act, as country CCPs and trading venues may request a license and referred to in Article 107(3) of Regulation (EU) No 575/2013 (as (3)] make use of [access rights in accordance with Article 37 of implemented by the Act), determining that those third country Regulation (EU) No 600/2014 (as implemented by the Act), entities are subject to supervisory and regulatory arrangements as referred to in Article 38 of Regulation (EU) No 600/2014 at least equivalent to those applied in the United Kingdom, as (as implemented by the Act)] / [access rights specified in any referred to in Article 107(4) of Regulation (EU) No 575/2013 order made by the [Treasury] under the Act for the purposes of (as implemented by the Act)] / [entities subject to equivalent this provision] (as described in a particular recognition decision prudential supervisory and regulatory requirements in that third or mutual recognition agreement and subject to any specific country for the purposes of the requirements applicable in the conditions). United Kingdom specified in any order made by the [Treasury] under the Act for the purposes of this provision] (as described 30. Regulation (EU) (a) Entities supervised in the relevant third country (as (i) The third country’s legal and/or in a particular recognition decision or mutual recognition No 600/2014 (as described in a particular recognition decision or mutual supervisory arrangements apply to agreement and subject to any specific conditions). implemented by recognition agreement and subject to any specific conditions) the entities referred to in point (a) the Act)[; Financial as, or to operate, an investment firm shall be treated under legally binding prudential and business 32. Regulation (EU) (a) Entities established and supervised in the relevant third the law of the United Kingdom, as [third country investment conduct requirements meeting [the country which correspond to a central government or central Services and Markets No 575/2013 (as firms subject to legal and supervisory arrangements ensuring conditions listed at Article 47(1)(a)- bank (as described in a particular recognition decision or mutual Act 2000; Financial implemented by the that the third country investment firms comply with legally (e) of Regulation (EU) No 600/2014 Act) recognition agreement and subject to any specific conditions) Services and Markets binding prudential and business conduct requirements (as implemented by the Act)] / [the shall be treated under the law of the United Kingdom as Act 2000 (Regulated which have equivalent effect to the requirements set out in conditions specified in any order made [CRR: exposures to [entities subject to supervisory and regulatory arrangements Activities) Order Regulation (EU) No 600/2014 (as implemented by the Act), by the [Treasury] under the Act for the government bodies: with respect to which a decision has been adopted by way of an 2001] in Directive 2013/36/EU (as implemented by the Act) and in purposes of this provision]. Art. 114-116] implementing act, as referred to in Article 114(7) of Regulation Directive 2014/65/EU (as implemented by the Act) and in the (EU) No 575/2013 (as implemented by the Act), determining [MiFIR: investment implementing measures adopted under Regulation (EU) No (ii) Cooperation arrangements are in that those third country entities are subject to supervisory and firms providing 600/2014 (as implemented by the Act), Directive 2013/36/ place or will be put in place with the regulatory arrangements at least equivalent to those applied in services to EU EU (as implemented by the Act) and Directive 2014/65/EU relevant third country specifying at least the United Kingdom, as referred to in Article 114(7) of Regulation professional (as implemented by the Act) and that the legal framework of [the matters listed at Article 47(2)(a) (EU) No 575/2013 (as implemented by the Act)] / [entities to (c) of Regulation (EU) No 600/2014 client and eligible that third country provides for an effective equivalent system subject to equivalent prudential supervisory and regulatory for the recognition of investment firms authorised under third- (as implemented by the Act)] / [the requirements in that third country for the purposes of the counterparties: Art. matters specified in any order made 47] country legal regimes which meet the conditions at Article 47(1) requirements applicable in the United Kingdom specified in any (a) to (e) of Regulation (EU) No 600/2014 (as implemented by the [Treasury] under the Act for the order made by the [Treasury] under the Act for the purposes of by the Act), with the effect that such third country firms may purposes of this provision]. this provision] (as described in a particular recognition decision provide investment services or perform investment activities or mutual recognition agreement and subject to any specific (with or without ancillary services) to eligible counterparties conditions). and to professional clients within the meaning of Section I of Annex II of Directive 2014/65/EU (as implemented by the 33. Regulation (EU) (a) Entities established and supervised in the relevant third Act) by applying for registration by the [FCA], as referred to in No 575/2013 (as country which correspond to a regional government or local Article 46 of Regulation (EU) No 600/2014 (as implemented implemented by the authority (as described in a particular recognition decision by the Act)] / [having the same rights to carry out the relevant Act) or mutual recognition agreement and subject to any specific specified activities* in relation to the relevant specified conditions) shall be treated under the law of the United investments** which a person having authorisation under Part [CRR: exposures to Kingdom as [entities subject to supervisory and regulatory 4A of the Financial Services and Markets Act 2000 would have government bodies: arrangements with respect to which a decision has been in relation to eligible counterparties and to professional clients] Art. 114-116] adopted by way of an implementing act, as referred to in Article (as described in a particular recognition decision or mutual 115(4) of Regulation (EU) No 575/2013 (as implemented by the recognition agreement and subject to any specific conditions). Act), determining that those third country entities are subject to supervisory and regulatory arrangements at least equivalent * In this row the term «relevant specified activities» means the to those applied in the United Kingdom] / [entities subject to activities which the Financial Services and Markets Act 2000 (Regulated Activities Order) 2001 specifies for the purposes of prudential supervisory and regulatory requirements in that section 22 of the Financial Services and Markets Act 2000 and third country which are at least equivalent to those applied which have been designated in the particular recognition decision in the United Kingdom for the purposes of the requirements or mutual recognition agreement as corresponding to the particular specified in any order made by the [Treasury] under the Act authorisations that third country investment firms may hold in the relevant third country. for the purposes of this provision] (as described in a particular recognition decision or mutual recognition agreement and ** In this row the term «relevant specified investments» means the subject to any specific conditions). investments which the Financial Services and Markets Act 2000 (Regulated Activities Order) 2001 specifies for the purposes of section 22 of the Financial Services and Markets Act 2000 and which have been designated in the particular recognition decision or mutual recognition agreement as corresponding to the particular authorisations that third country investment firms may hold in the relevant third country. DRAFT UK IMPLEMENTATION OF THE EQUIVALENCE REGULATION OF THE EQUIVALENCE Appendix B DRAFT UK IMPLEMENTATION

104 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 105 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

RELEVANT UNITED KINGDOM DESCRIPTION OF EFFECT OF AGREED ADDITIONAL RELEVANT UNITED KINGDOM DESCRIPTION OF EFFECT OF AGREED ADDITIONAL LEGISLATION EQUIVALENCE RECOGNITION IN THE UNITED KINGDOM EQUIVALENCE CRITERIA LEGISLATION EQUIVALENCE RECOGNITION IN THE UNITED KINGDOM EQUIVALENCE CRITERIA

34. Regulation (EU) (a) Entities established and supervised in the relevant third 37. Directive 2009/138/ (a) The solvency regime of the relevant third country that (i) The solvency regime of the third No 575/2013 (as country which correspond to a public sector entity (as described EC (as implemented applies to undertakings with head offices in that third country country applies to the reinsurance implemented by the in a particular recognition decision or mutual recognition by the Act) (as described in a particular recognition decision or mutual activities of undertakings with head Act) agreement and subject to any specific conditions) shall be recognition agreement and subject to any specific conditions) offices in the third country referred to treated under the law of the United Kingdom as entities subject [Solvency II: third shall be treated under the law of the United Kingdom as a third in point (a) equivalent legally binding [CRR: exposures to to supervisory and regulatory arrangements with respect to country reinsurance country solvency regime in respect of which a delegated act requirements [to those applicable in government bodies: which a decision has been adopted by way of an implementing activity: Art. 172] has been adopted, as referred to in Article 172(2) of Directive the United Kingdom under Title I of Art. 114-116] act, as referred to in Article 116(5) of Regulation (EU) No 2009/138/EC (as implemented by the Act), determining Directive 2009/138/EC (as implemented 575/2013 (as implemented by the Act), determining that those that the solvency regime of the third country that applies to by the Act)] / [specified in any order third country entities are subject to supervisory and regulatory reinsurance activities of undertakings with head offices in that made by the [Treasury] under the Act arrangements at least equivalent to those applied in the United third country is equivalent to that laid down in Title I of Directive for the purposes of this provision]. Kingdom] / [entities subject to prudential supervisory and 2009/138/EC (as implemented by the Act). regulatory requirements in that third country which are at least equivalent to those applied in the United Kingdom for the 38. [Directive 2009/138/ (a) The supervisory and solvency regime of the relevant (i) The supervisory and solvency regime purposes of the requirements specified in any order made by EC (as implemented third country that is applicable to insurance and reinsurance of the third country applies to the the [Treasury] under the Act for the purposes of this provision] by the Act)[; Solvency undertakings with head offices in that third country (as reinsurance or insurance undertakings (as described in a particular recognition decision or mutual 2 Regulations 2015] described in a particular recognition decision or mutual with head offices in the third country recognition agreement and subject to any specific conditions). recognition agreement and subject to any specific conditions), referred to in point (a) equivalent [Solvency II: EU shall be treated under the law of the United Kingdom as a third legally binding requirements to [those 35. Regulation (EU) (a) Entities corresponding to large financial sector entities (or insurers in third country supervisory regime in respect of which a delegated act applicable under Title I, Chapter VI of No 575/2013 (as subsidiaries* of such entities) that are supervised and regulated countries: solvency has been adopted, as referred to in Article 227(4) of Directive Directive 2009/138/EC (as implemented implemented by the in the relevant third country (as described in a particular rules: Art. 227] 2009/138/EU (as implemented by the Act), determining that by the Act) and such insurance and Act) recognition decision or mutual recognition agreement and the supervisory regime of that third country is equivalent to reinsurance undertakings are subject subject to any specific conditions) shall be treated under the that laid down in Title I, Chapter VI, of Directive 2009/138/ to authorisation in that third country] [CRR: Credit law of the United Kingdom as entities subject to supervisory EU (as implemented by the Act), and with the effect that / [those specified in any order made institutions: Art. 142] and regulatory arrangements with respect to which a decision such third country head offices are treated as being subject to by the [Treasury] under the Act for the has been adopted via an implementing act, as referred to in authorisation and a solvency regime at least equivalent to that purposes of this provision]. Article 142(2) of Regulation (EU) No 575/2013 (as implemented laid down in Title I, Chapter VI, of Directive 2009/138/EU (as by the Act), determining that those third country entities were implemented by the Act), as referred to in the second paragraph subject to supervisory and regulatory arrangements at least of Article 227(1) of Directive 2009/138/EU (as implemented equivalent to those applied in the United Kingdom / [entities by the Act) [including for the purposes of regulation 19 of the subject to prudential supervisory and regulatory requirements in Solvency 2 Regulations 2015]. that third country which are at least equivalent to those applied in the United Kingdom for the purposes of the requirements 39. Directive 2009/138/ (a) The prudential regime of the relevant third country which (i) The prudential regime of the third specified in any order made by the [Treasury] under the Act EC (as implemented applies to parent undertakings with head offices in that county applies to the reinsurance or for the purposes of this provision] (as described in a particular by the Act)[; Solvency third country of insurance and reinsurance undertakings insurance undertakings with head recognition decision or mutual recognition agreement and 2 Regulations 2015] (as described in a particular recognition decision or mutual offices in the third country referred to subject to any specific conditions). recognition agreement and subject to any specific conditions) in point (a) equivalent legally binding [Solvency II: third shall be treated as a prudential regime, in respect of which requirements to [those applicable under * The term «subsidiary» in this row means a subsidiary within a delegated act has been adopted, as referred to in Article Title III of Directive 2009/138/EC] / the meaning of Article 4(16) of Regulation (EU) No 575/2013 (as country insurers: implemented by the Act). group supervision: 260(3) of Directive 2009/138/EU (as implemented by the [those specified in any order made by Art. 260] Act), determining that the third country prudential regime is the [Treasury] under the Act for the 36. Regulation (EU) (a) Entities corresponding to large financial sector entities (or equivalent to that laid down in Title III of Directive 2009/138/ purposes of this provision] and such No 575/2013 (as subsidiaries* of such entities) that are supervised and regulated EU (as implemented by the Act) at the level of the group of entities are subject to authorisation in implemented by the in the relevant third country (as described in a particular insurance and reinsurance undertakings referred to in Article that third country. Act) recognition decision or mutual recognition agreement and 213(2)(a) and (b) of Directive 2009/138/EU (as implemented by subject to any specific conditions) shall be treated under the the Act)[, including for the purposes of regulations 35 and 36 of [CRR: Investment law of the United Kingdom as entities subject to supervisory the Solvency 2 Regulations]. firms: Art. 142] and regulatory arrangements with respect to which a decision has been adopted via an implementing act, as referred to in Article 142(2) of Regulation (EU) No 575/2013 (as implemented by the Act), determining that those third country entities were subject to supervisory and regulatory arrangements at least equivalent to those applied in the United Kingdom / [entities subject to prudential supervisory and regulatory requirements in that third country which are at least equivalent to those applied in the United Kingdom for the purposes of the requirements specified in any order made by the [Treasury] under the Act for the purposes of this provision] (as described in a particular recognition decision or mutual recognition agreement and subject to any specific conditions).

* The term «subsidiary» in point (a) of this row shall have the meaning given to subsidiary in point 16 of Article 4(1) of Regulation (EU) No 575/2013 (as implemented by the Act). DRAFT UK IMPLEMENTATION OF THE EQUIVALENCE REGULATION OF THE EQUIVALENCE Appendix B DRAFT UK IMPLEMENTATION

106 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 107 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

RELEVANT UNITED KINGDOM DESCRIPTION OF EFFECT OF AGREED ADDITIONAL (b) Annex II of the Regulation is incorporated in the following amended form: LEGISLATION EQUIVALENCE RECOGNITION IN THE UNITED KINGDOM EQUIVALENCE CRITERIA

40. Directive 2011/61/EU (a) Entities supervised in the relevant third country (as described in a (i) Cooperation arrangements are in RELEVANT UNITED KINGDOM DESCRIPTION OF EFFECT OF AGREED ADDITIONAL (as implemented by particular recognition decision or mutual recognition agreement and place or will be put in place between the LEGISLATION EQUIVALENCE RECOGNITION IN THE UNITED KINGDOM EQUIVALENCE CRITERIA subject to any specific conditions) and authorised as an AIFM shall be the Act); Alternative [FCA] and the supervisory authorities of treated under the law of the United Kingdom as [able to acquire prior the third country in which the applicant 1. Financial Services and (a) Entities supervised in the relevant third country (as described in (i) The third country’s legal and/ Investment Fund authorisation by the [FCA] as referred to in Article 37(1) of Directive has its registered office that allow Markets Act 2000 a particular recognition decision or mutual recognition agreement or supervisory regime applies to Managers Regulations 2011/61/EU (as implemented by the Act) and regulation 5A of the an efficient exchange of information and subject to any specific conditions) and authorised to carry out the entities referred to in point Alternative Investment Fund Managers Regulations 2013] / [having the [Investment services/ 2013 that enables the [FCA] and any other activities corresponding to investment services and activities (with (a) requirements which are same rights as a firm authorised under Part 4A of the Financial Services business] or without ancillary services) shall be treated under the law of the equivalent to those applicable to and Markets Act 2000 to carry out the specified activity of managing relevant competent authority to carry [Funds – Non-UK United Kingdom as having the same rights as persons authorised persons authorised to carry out AIFMs managing UK an AIF pursuant to article 51ZC and the additional activities included in out their duties in accordance with the activity of managing an AIF pursuant to Schedule 7 of the Financial [Directive 2011/61/EU (as implemented to carry out the relevant regulated activities under Part 4A of the the relevant regulated activities AI Fs or marketing Services and Markets Act 2000 (Regulated Activities) Order 2001] (as by the Act] / [the Alternative Financial Services and Markets Act 2000, with the effect that such under Part 4A of the Financial AIFs in the UK; UK described in a particular recognition decision or mutual recognition Investment Fund Managers Regulations third country entities shall be able to provide such regulated activities Services and Markets Act 2000. AIFMs managing Non- agreement and subject to any specific conditions). 2013]. within the United Kingdom either by establishing a branch* in the United Kingdom or by providing such services as referred to in Articles UK AIFs] (b) Certain requirements of the relevant third country’s legal and (ii) The third country in which the 34 and 35 of Directive 2014/65/EU (as implemented by the Act) supervisory regime applicable to the third country entities referred to in point (a) (as described in a particular recognition decision or applicant has its registered office is not within the United Kingdom (as described in a particular recognition mutual recognition agreement and subject to any specific conditions) listed as a Non-Cooperative Country decision or mutual recognition agreement and subject to any specific shall be treated under the law of the United Kingdom as [meeting and Territory by the Financial Action conditions). the requirements listed in Article 37(2) of Directive 2011/61/EU (as Task Force.* * The term ‘branch’ in this row means a branch within the meaning of point implemented under the Act), with the effect that the third country (30) of Article 4(1) of Directive 2014/65/EU (as implemented by the Act). entities referred to in point (a) shall not be under any obligation to (iii) An agreement is in place or will be put in place with the third country comply with a provision of Directive 2011/61/EU (as implemented under 2. Financial Services and (a) Entities supervised in the relevant third country (as described in a (i) The third country’s legal and/ the Act) to the extent that it is incompatible with the third country which fully complies with the Model Tax particular recognition decision or mutual recognition agreement and or supervisory regime applies to requirement] / [meeting the requirements specified in any order made Markets Act 2000 Convention on Income and on Capital subject to any specific conditions) and authorised to operate as, or to the entities referred to in point by the [Treasury] under the Act for the purposes of this provision, with and ensures an effective exchange of [Systematic the effect that the third country entities referred to in point (a) shall not operate, a systematic internaliser shall be treated under the law of the (a) requirements which are information on tax matters, including internalisers] United Kingdom as having the same rights as systematic internalisers equivalent to those applicable be under any obligation to comply with those requirements to the extent any multilateral tax agreements. that is incompatible with the third country requirement] / [provisions authorised under the Financial Services and Markets Act 2000 and to systematic internalisers falling within regulations 5A(4) and (6) of the Alternative Investment (iv) The third country’s legal and regulated by the FCA, with the effect that such third country entities authorised under the Financial Fund Managers Regulations 2013 when these provisions are in effect] supervisory regime does not prevent shall have the rights as a systematic internaliser authorised under the Services and Markets Act 2000. (as described in a particular recognition decision or mutual recognition the effective exercise by the [FCA] of its Financial Services and Markets Act 2000 (as described in a particular agreement and subject to any specific conditions). supervisory functions. recognition decision or mutual recognition agreement and subject to (c) Entities supervised in the relevant third country (as described in any specific conditions). * In this row, «Non-Cooperative Country a particular recognition decision or mutual recognition agreement and Territory» and «Financial Action 3. (a) Undertakings established in and supervised in the relevant third (i) A cooperation agreement is and subject to any specific conditions) and authorised as an AIF shall Task Force» have the same meaning as Financial Services and be treated under the law of the United Kingdom as [meeting the used in regulation 5A of the Alternative Markets Act 2000 country (as described in a particular recognition decision or mutual in place with the third country requirements listed in Article 35(2) of Directive 2011/61/EU, with the Investment Fund Managers Regulations recognition agreement and subject to any specific conditions) shall authorities with responsibility effect that AIFMs shall be able to submit a notification to the [FCA] in 2013 (SI 2013/1773) when that regulation [AIFM delegation] be treated under the law of the United Kingdom as third country for supervising the third country respect of each non-UK AIF* that it intends to market, as referred to in is in effect. undertakings authorised under the Financial Services and Markets Act undertakings referred to in point Article 35(3) of Directive 2011/61/EU (as incorporated by the Act)] and 2000 to carry out portfolio management and/or risk management (a) for the purposes of enabling regulation 54 of the Alternative Investment Funds Regulations 2013] / activities under article 51ZC of the Financial Services and Markets monitoring and supervising of the [AIFs which AIFMs may make applications for under regulation 54 of the Act 2000 (Regulated Activities) Order 2001 to whom AIFMs may third country undertaking. Alternative Investment Fund Managers Regulations 2013 to be marketed in the United Kingdom] (as further detailed in the particular recognition delegate portfolio management or risk management (as described in decision or mutual recognition agreement and subject to any specific a particular recognition decision or mutual recognition agreement and conditions). subject to any specific conditions). * In this row the term ‘non-UK AIF’ means an AIF which is not 4. Financial Services and (a) Entities established in the relevant third country (as described in a (i) The third country’s legal authorised or registered in the UK under the Alternative Investment particular recognition decision or mutual recognition agreement and and/or supervisory regime Funds Regulations 2013 or which has its registered office and/ Markets Act 2000 or head office in the United Kingdom but is not authorised or subject to any specific conditions) and supervised in that third country applies to the third country registered in the UK under the Alternative Investment Funds [AIFM third country shall be treated under the law of the United Kingdom as depositories entities referred to in point (a) Regulations 2013. [NOTE: Reference is subject to confirmation on depository] authorised under the Financial Services and Markets Act 2000 equivalent prudential regulation how the «Non-EU AIF» concept will be transposed into UK law.] as, or to operate, a depository under article 51ZD of the Financial and supervision as applied Services and Markets Act 2000 (Regulated Activities) Order 2001 to depositories in the United 41. Entities established in the relevant third country (as described (i) The third country’s legal and/or Directive 2011/61/EU and established in a third country subject to prudential regulation and Kingdom authorised under the in a particular recognition decision or mutual recognition supervisory regime applies to the third (as implemented by supervision that has the same effect as that in the United Kingdom (as Financial Services and Markets agreement and subject to any specific conditions) and country entities referred to in point (a) the Act) described in a particular recognition decision or mutual recognition Act 2000. authorised as, or to operate, a depository shall be treated under equivalent prudential regulation and agreement and subject to any specific conditions). [AIFM third country the law of the United Kingdom as depositories established in a supervision as applied to depositories in depository] third country subject to prudential regulation and supervision the United Kingdom. in respect of which an implementing act has been adopted, as referred to in the final subparagraph of Article 21(6) of Directive 2011/61/EU (as implemented by the Act), stating that prudential regulation and supervision of the third country has the same effect as the law of the United Kingdom and is effectively enforced. DRAFT UK IMPLEMENTATION OF THE EQUIVALENCE REGULATION OF THE EQUIVALENCE Appendix B DRAFT UK IMPLEMENTATION

108 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 109 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

RELEVANT UNITED KINGDOM DESCRIPTION OF EFFECT OF AGREED ADDITIONAL RELEVANT UNITED KINGDOM DESCRIPTION OF EFFECT OF AGREED ADDITIONAL LEGISLATION EQUIVALENCE RECOGNITION IN THE UNITED KINGDOM EQUIVALENCE CRITERIA LEGISLATION EQUIVALENCE RECOGNITION IN THE UNITED KINGDOM EQUIVALENCE CRITERIA

5. Regulation (EC) (a) Credit ratings issued by entities supervised in the relevant third (i) The third country’s legal and/ 6. Directive 2013/36/EU (a) Entities supervised in the relevant third country (as described in a (i) The third country’s legal and/or No 1060/2009 (as county (as described in a particular recognition decision or mutual or supervisory regime ensures (as implemented by particular recognition decision or mutual recognition agreement and supervisory regime applies to the third implemented by the recognition agreement and subject to any specific conditions) and that the third country entities the Act), Regulation subject to any specific conditions) and authorised as, or to operate, country entities as referred to in point Act) authorised as, or to operate, a credit rating agency shall be treated referred to in point (a) are subject (EU) No 575/2013 (as a credit institution shall be treated under the law of the United (a) requirements that are equivalent to under the law of the United Kingdom as credit ratings which may be to binding rules equivalent to Kingdom as having the same rights as credit institutions authorised those that are required to be applied implemented by the [Credit Rating used by credit institutions, investment firms, insurance undertakings, those set out in [Articles 6 to 12 by the PRA, with the effect that such third country entities shall be to credit institutions authorised by Act) Agencies] reinsurance undertakings, institutions for occupational retirement and Annex I of Regulation (EC) able to carry out the activities listed in Annex I of Directive 2013/36/ the PRA. provision, management companies, investment companies, alternative No 1060/2009 (as implemented EU (as implemented by the Act) for which the third country entity [Credit institution (ii) The third country’s legal and/or investment fund managers and central counterparties for regulatory by the Act), with the exception is authorised within the United Kingdom either by establishing a activities] supervisory regime applies to the third purposes, as referred to in Article 4(1) of Regulation (EC) No of Articles 6a, 6b, 8a, 8b, 8c and branch* or by carrying out such activities (as described in a particular country entities as referred to in point 1060/2009 (as implemented by the Act) (as described in a particular 11a, point (ba) of point 3 and recognition decision or mutual recognition agreement and subject to (b) requirements that correspond and recognition decision or mutual recognition agreement and subject to points 3a and 3b of Section B of any specific conditions). are equivalent to those requirements any specific conditions). Annex I of Regulation (EC) No contained in [Articles 34(1)(a) to 1060/2009 (as implemented by (b) Entities supervised in the relevant third country (as described in a 34(1)(b) of Directive 2013/36/EU the Act)] / [any order made by particular recognition decision or mutual recognition agreement and (as implemented by the Act)] / the [Treasury] under the Act for subject to any specific conditions) and authorised as, or to operate, [requirements specified in any order the purposes of this provision]. a financial institution shall be treated under the law of the United Kingdom as having the same rights as [an authorised person with made by the [Treasury] under the Act (ii) The third country’s regulatory permission to carry out the regulated activities specified in an order for the purposes of this provision]. regime applicable to the third made by the Treasury for the purposes of this provision], with the (iii) The third country’s legal regime country entities referred to in effect that such third country entities shall be able to carry out such applies to the third country entities point (a) prevents interference by activities within the United Kingdom either by establishing a branch or referred to in point (a) [requirements the supervisory authorities and by carrying out such activities (as described in a particular recognition that are equivalent to those applied other public authorities of that decision or mutual recognition agreement and subject to any specific to credit institutions pursuant to the third country with the content of conditions). Financial Services and Markets Act credit ratings and methodologies. * The term «branch» in this row means a branch within the meaning of 2000 and Directive 2013/36/EU (as (ii) A cooperation agreement is in Article 4(17) of Regulation (EU) 575/2013 (as implemented by the Act). implemented by the Act), Regulation place between the relevant third (EU) No 575/2013 (as implemented by country and the FCA specifying the Act)] / [[requirements specified at least [the matters referred in any order made by the Treasury to in Article 5(7)(a) and (b) of for the purposes of this provision Regulation (EC) No 1060/2009 pursuant to the Act,] where such (as implemented by the Act)] / entities are authorised in that third [requirements as specified for country to carry out deposit taking the purposes of this provision in activities]. an order made by the Treasury (iv) Where the third country entities pursuant to the Act]]. referred to in point (a) or (b) are authorised in the relevant third country to carry out activities corresponding to the investment services and activities listed in points (3) and (6) of Section A of Annex I of Directive 2014/65/ EU (as implemented by the Act), the third country’s legal or supervisory regime applies requirements which are equivalent to those applicable under Part 6 of Regulation (EU) No 575/2013 taking into account the nature, scale and complexity of the third country entity’s activities / [[requirements specified in any order made by the Treasury for the purposes of this provision pursuant to the Act,] where such entities are authorised in that third country to carry out deposit taking activities]. DRAFT UK IMPLEMENTATION OF THE EQUIVALENCE REGULATION OF THE EQUIVALENCE Appendix B DRAFT UK IMPLEMENTATION

110 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 111 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

RELEVANT UNITED KINGDOM DESCRIPTION OF EFFECT OF AGREED ADDITIONAL RELEVANT UNITED KINGDOM DESCRIPTION OF EFFECT OF AGREED ADDITIONAL LEGISLATION EQUIVALENCE RECOGNITION IN THE UNITED KINGDOM EQUIVALENCE CRITERIA LEGISLATION EQUIVALENCE RECOGNITION IN THE UNITED KINGDOM EQUIVALENCE CRITERIA

7. Regulation (EU) (a) The provisions of Regulation (EU) 2015/751 (as implemented by (i) The third country’s legal and/ 9. Financial Services and (a) Entities supervised in the relevant third county (as described in a 2015/751 (as the Act) shall (as described in a particular recognition decision or or supervisory regime applies Markets Act 2000 particular recognition decision or mutual recognition agreement and implemented by the mutual recognition agreement and subject to any specific conditions) to payment service providers, subject to any specific conditions) and authorised as, or to operate, [Regulated Markets] Act) be extended to apply to card-based payments transactions carried processing entities, payment a regulated market in that third country shall be treated under the out between the United Kingdom and the relevant third country, card schemes, issuers, acquirers law of the United Kingdom as having the same rights as a regulated [Interchange Fees] where both the payer’s payment service provider* and the payee’s and other technical service market authorised as a recognised investment exchange authorised payment service provider are, respectively, located in either the United providers located in that third by the FCA in accordance with section 290(1) of the Financial Services Kingdom or the relevant third country (as described in a particular country, reciprocal and equivalent and Markets Act 2000, with the effect that (subject to the terms of recognition decision or mutual recognition agreement and subject to requirements to those [applied the recognition decision or mutual recognition agreement) such a any specific conditions). by Regulation (EU) 2015/751 third country market or market operator shall be able to exercise the (as implemented by the Act)] same rights that a regulated market would be able to in the United (b) Payment service providers, processing entities, payment card / [specified in any order made Kingdom under Directive 2014/65/EU (as implemented by the Act) schemes, issuers, acquirers and other technical service providers by the Treasury pursuant to and Regulation (EU) 600/2014 (as implemented by the Act), by located in the United Kingdom shall (as described in a particular the Act for the purposes of this complying with the equivalent legal and supervisory requirements of recognition decision or mutual recognition agreement and subject to provision]. the third country instead of requirements applicable to a regulated any specific conditions) be subject to the same requirements contained market pursuant to Directive 2014/65/EU (as implemented by the in Regulation (EU) 2015/751 (as implemented by the Act) when carrying Act) or Regulation (EU) No 600/2014 (as implemented by the out card-based payment transactions with payment services providers, Act) (as described in a particular recognition decision or mutual payers, payees and/or consumers** located in the relevant third country recognition agreement). (as described in a particular recognition decision or mutual recognition agreement and subject to any specific conditions). 10. Financial Services and (a) Entities supervised in a third country (as described in a particular * In this row the term «payment service provider» has the meaning given Markets Act 2000 recognition decision or mutual recognition agreement and subject to payment service provider in Article 2(24) of Regulation (EU) 2015/751 to any specific conditions) and authorised as, or to operate, a data (as implemented by the Act). [Data Service services provider (including an ARM, CTP or ARM) shall be treated **The term «consumer» in this row means a consumer within the meaning Providers] under the law of the United Kingdom as having the same rights as a of Article 2(3) of Directive 2008/48/EC (as implemented by the Act). data reporting services provider authorised by the FCA in accordance 8. Directive 2008/48/ (a) Entities supervised in the relevant third country (as described in (i) The third country’s legal and/ with the [Financial Services and Markets Act 2000 (Data Reporting EC (as implemented a particular recognition decision or mutual recognition agreement or supervisory regime applies Services) Regulations 2016], with the effect that such third country entities shall (as described in a particular recognition decision or by the Act), Directive and subject to any specific conditions) and authorised to operate to the third country entities mutual recognition agreement and subject to any specific conditions) 2014/17/EU (as as, and carry out the activities of, a creditor or credit intermediary in referred to in points (a) and (b) relation to credit agreements* with consumers shall be treated under requirements that are equivalent be able to exercise the same rights that an authorised data reporting implemented by the the law of the United Kingdom as complying with [the requirements to those applied by [Directive services provider would have under the [Financial Services and Act) applicable under Directive 2008/48/EC (as implemented by the 2008/48/EC (as implemented by Markets Act 2000 (Data Reporting Services) Regulations 2016], by complying with the equivalent legal and supervisory requirements [Mortgage Lending: Act)] / [requirements specified by the Treasury in any order made the Act) and Directive 2014/17/ of the third country instead of the requirements applicable to a data Consumer Credit; pursuant to the Act for the purposes of this provision] by complying EU(as implemented by the with the corresponding third country requirements (as described in a Act)] / [any order made by the reporting services provider pursuant to the [Financial Services and Mortgage Providers] particular recognition decision or mutual recognition agreement and Treasury pursuant to the Act for Markets Act 2000 (Data Reporting Services) Regulations 2016]. subject to any specific conditions) applicable to creditors or credit the purposes of this provision]. (a) Formal arrangements established in the relevant third country (as (i) The third country’s legal intermediaries in that third country in relation to credit agreements 11. Financial Markets described in a particular recognition decision or mutual recognition system provides reciprocal with consumers (as described in a particular recognition decision or and Insolvency agreement and subject to any specific conditions) which would and equivalent protections as mutual recognition agreement and subject to any specific conditions). (Settlement Finality) Regulations 1999 constitute a designated system* (but for being governed by the law provided in [Directive 98/26/EC (b) Entities supervised in the relevant third country (as described in of the third country), shall be treated under the law of the United (as implemented by the Act)] a particular recognition decision or mutual recognition agreement [Payment & Securities Kingdom as if they were systems that have been designated under / [the Financial Markets and and subject to any specific conditions) and authorised to operate as, Settlement Services] the Financial Markets and Insolvency (Settlement Finality) Regulations Insolvency (Settlement Finality) and carry out activities in relation to credit agreements within the 1999, with the effect that the protections applicable to systems, Regulations 1999] to systems, scope of Article 3 of Directive 2014/17/EU (as implemented by the participants and collateral security implemented by the Financial participants and collateral Act) (including ancillary services**) of a creditor, credit intermediary, Markets and Insolvency (Settlement Finality) Regulations 1999 in security. tied credit intermediary, or appointed representative shall be treated accordance with Directive 98/26/EC (as implemented by the Act) under the law of the United Kingdom as able (subject to the terms shall be extended (as described in a particular recognition decision or of the mutual recognition agreement) to carry out such activities in mutual recognition agreement and subject to any specific conditions) relation to credit agreements, with consumers in the United Kingdom, to such third country systems. including by establishing a branch (subject to the terms of a specific * The term «designated system» in this row means a designated system mutual recognition agreement), by complying with the corresponding within the meaning of paragraph 2(1) of the Financial Markets and equivalent third country requirements (as described in a particular Insolvency (Settlement Finality) Regulations 1999. recognition decision or mutual recognition agreement and subject to any specific conditions), instead of the requirements [of Directive 2014/17/EC] / [of any order made by the Treasury pursuant to the Act for the purposes of this provision] (as described in a particular * The term «credit agreement» recognition decision or mutual recognition agreement and subject to in this point (a) means a credit any specific conditions). agreement that is not excluded from Directive 2008/48/EC (d) Entities referred to in point (a) and (b) of row 6 of this table, may (as implemented by the Act) pursuant to Article 2(2) and 2(2a) be included in the third country entities referred to in points (a) and of Directive 2008/48/EC (as (b), and subject to the terms of any relevant recognition decision implemented by the Act). or mutual recognition agreement which contains the equivalence ** The term «ancillary services» recognition provision at row 6 of this table as an agreed equivalence in this point (b) means ancillary services within the meaning of provision (as described in a particular recognition decision or mutual Article 4(4) of Directive 2014/17/EU recognition agreement and subject to any specific conditions). (as implemented by the Act). DRAFT UK IMPLEMENTATION OF THE EQUIVALENCE REGULATION OF THE EQUIVALENCE Appendix B DRAFT UK IMPLEMENTATION

112 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 113 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

RELEVANT UNITED KINGDOM DESCRIPTION OF EFFECT OF AGREED ADDITIONAL RELEVANT UNITED KINGDOM DESCRIPTION OF EFFECT OF AGREED ADDITIONAL LEGISLATION EQUIVALENCE RECOGNITION IN THE UNITED KINGDOM EQUIVALENCE CRITERIA LEGISLATION EQUIVALENCE RECOGNITION IN THE UNITED KINGDOM EQUIVALENCE CRITERIA

12. Directive 2009/65/ (a) Undertakings or investment companies established and supervised (i) The third country’s legal 14. Directive 2009/138/ (a) Entities supervised in the relevant third country (as described in a (i) The legal and/or supervisory EC (as implemented in the relevant third country (as described in a particular recognition and/or supervisory regime EC (as implemented particular recognition decision or mutual recognition agreement and regime of the third country by the Act), Financial decision or mutual recognition agreement and subject to any specific applies to the third country by the Act), Financial subject to any specific conditions) and authorised as, or to operate, applies to the third country Services and Markets conditions) and authorised in a manner corresponding to UCITs undertakings referred to in Services and Markets an insurance undertaking and/or reinsurance undertaking, shall be entities referred to in point (a) (but for being established in a third country) shall be treated under point (a) requirements that are treated under the law of the United Kingdom as having the same requirements that are equivalent Act 2000 Act 2000 the law of the United Kingdom as having the same rights as UCITs equivalent to those applied to rights as [a person authorised by the FCA or PRA to carry out the to [those applied to insurance [UCITS Funds] managed by a management company authorised under the Financial UCITs managed by management [Direct Insurance & relevant regulated activities under Part 4A of the Financial Services undertakings or reinsurance Services and Markets Act 2000 to carry out the activity of managing companies authorised to manage Reinsurance] and Markets Act 2000 in relation to contracts of insurance] / [an undertakings authorised under UCITs pursuant to article 51ZA of the Financial Services and Markets UCITs pursuant to Article 51ZA insurance undertaking authorised pursuant to Article 14 of Directive Article 14 of Directive 2009/138/ Act 2000 (Regulated Activities) Order 2001 or a UCITs open-ended of the Financial Services and 2009/138/EC (as implemented by the Act)], with the effect that such EC] / [those applied to persons investment company authorised pursuant to the Open-Ended Markets Act 2000 (Regulated third country entities shall be [able to insure the classes of insurance authorised to carry out the Investment Companies Regulations 2001 (as described in a particular Activities) Order 2001 or listed at Part A of Annex I and Annex II of Directive 2009/138/EC relevant regulated activities in recognition decision or mutual recognition agreement and subject to UCITs investment companies (as implemented by the Act) (including ancillary risks) and/or carry relation to contracts of insurance any specific conditions). authorised pursuant to the Open- out reinsurance within the United Kingdom, either by establishing a pursuant to Part 4A of the Ended Investment Companies branch* or providing services as an insurance undertaking, as referred Financial Services and Markets (b) Entities supervised in the relevant third country (as described in a Regulations 2001. to in Article 15(1) of Directive 2009/138/EC (as implemented by the Act 2000]. particular recognition decision or mutual recognition agreement and Act)] / [able to carry out the relevant regulated activities in relation subject to any specific conditions) and authorised as, or to operate, a (ii) The third country’s legal and/ to contracts of insurance in the United Kingdom pursuant to Part 4A management company shall be treated under the law of the United or supervisory regime applies to of the Financial Services and Markets Act 2000] (as described in a Kingdom as having the same rights as a person authorised by the FCA the third country entities referred particular recognition decision or mutual recognition agreement and to carry out the activity of managing UCITs and/or establishing and to in point (b)requirements that subject to any specific conditions). operating a collective investment scheme pursuant to articles 51ZA are equivalent to management and 51ZE of the Financial Services and Markets Act 2000 (Regulated companies authorised to manage * The term «branch» in this row means a branch within the meaning of Activities) Order 2001 (as described in a particular recognition UCITs pursuant to Article 51ZA Article 162(3) of Directive 2009/138/EC (as implemented by the Act), with Article 13(11) being construed as a reference to the third country that has decision or mutual recognition agreement and subject to any specific of the Financial Services and authorised the third country undertaking as an insurance undertaking. conditions) and able to provide such services or to establish a branch* Markets Act 2000 (Regulated in the United Kingdom (as implemented by the Act). Activities) Order 2001. 15. Regulation (EU) (a) Entities supervised in the relevant third country (as described in (i) The third country’s legal and/ a particular recognition decision or mutual recognition agreement or supervisory regime ensures * The term «branch» in this row means a branch within the meaning of No 575/2013 (as (iii) The third country’s legal and/ and subject to any specific conditions) and authorised to provide that the third country entities point (g) of Article 2(1) of Directive 2009/65/EC (as implemented by the or supervisory regime applies to implemented by the Act). Act) life insurance shall be treated under the law of the United Kingdom referred to in point (a) are the third country entities referred as being subject to supervision by a competent authority of a third subject to requirements which to in point (b) requirements that [Life insurance, country which applies supervisory and regulatory arrangements at are equivalent to companies are equivalent to those referred eligible collateral] least equivalent to those applied in the United Kingdom, as referred to providing life insurance that are to in Article 6(4) of Directive in Article 212(2)(j) of Regulation (EU) No 575/2013 (as implemented subject to Directive 2009/138/EC 2009/65/EC (as implemented by the Act) (as described in a particular recognition decision or mutual (as implemented by the Act). under the Act), where such third recognition agreement and subject to any specific conditions). country entities are authorised in that third country to carry out the 16. Directive (EU) (a) Entities supervised in the relevant third country (as described in a (i) The third country’s legal services referred to in Article 6(3) 2016/97 (as particular recognition decision or mutual recognition agreement and and/or supervisory regime (a) and (b) of Directive 2009/65/ implemented by subject to any specific conditions) and authorised as, or to operate, applies to the third country EC (as implemented by the Act). the Act), Financial an insurance intermediary, a reinsurance intermediary and/or an entities referred to in point (a) ancillary insurance intermediary shall be treated under the law of the requirements that are equivalent Services and Markets 13. Directive 2009/65/ (a) Where a management company delegates functions to a third- (i) A cooperation agreement for United Kingdom as having the same rights as [persons authorised to those that are applicable EC (as implemented country undertaking pursuant to Article 13 of Directive 2009/65/EC the purposes of monitoring the Act 2000 by the FCA or PRA to carry out the relevant regulated activities in to [insurance, reinsurance and (as implemented by the Act) and such a mandate involves investment compliance of the management by the Act) [Insurance Mediation] relation to contracts of insurance pursuant to Part 4A of the Financial ancillary insurance intermediaries management, the requirement that cooperation between the company with the requirements Services and Markets Act 2000]/ [insurance, reinsurance and ancillary registered pursuant to Article [UCITs delegation of supervisory authorities concerned must be ensured shall (as described of Directive 2009/65/EC (as insurance undertakings registered pursuant to Article 13(1) of Directive 3 of Directive (EU) 2016/97 (as management] in a particular recognition decision or mutual recognition agreement implemented by the Act) is in (EU) 2016/97 (as implemented by the Act)], with the effect that implemented by the Act)] / and subject to any specific conditions) in the law of the United place with the relevant third such third country entities shall be able to [carry on insurance and/or [persons authorised to carry out Kingdom be deemed to have been satisfied for the purposes of Article country supervisory authorities. reinsurance distribution, or insurance distribution on an ancillary basis the relevant regulated activities 13(1)(d) of Directive 2009/65/EC (as implemented by the Act). as described in point (4) of Article 2(1) of Directive (EU) 2016/97 (as in relation to insurance contracts implemented by the Act) within the United Kingdom by establishing a pursuant to Part 4A of the branch* or by providing such services, as referred to in Articles 4 and Financial Services and Markets 6 of Directive (EU) 2016/97 (as implemented by the Act)] / [carry on Act 2000]. the relevant regulated activities in relation to contracts of insurance in the United Kingdom pursuant to Part 4A of the Financial Services and Markets Act 2000] (as described in a particular recognition decision or mutual recognition agreement and subject to any specific conditions).

* The term «branch» in this row means a branch within the meaning of point (12) of Article 2(1) of Directive (EU) 2016/97 (as implemented by the Act) with the reference to the intermediary’s home Member State being construed as the third country that the intermediary is authorised by. DRAFT UK IMPLEMENTATION OF THE EQUIVALENCE REGULATION OF THE EQUIVALENCE Appendix B DRAFT UK IMPLEMENTATION

114 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 115 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

RELEVANT UNITED KINGDOM DESCRIPTION OF EFFECT OF AGREED ADDITIONAL RELEVANT UNITED KINGDOM DESCRIPTION OF EFFECT OF AGREED ADDITIONAL LEGISLATION EQUIVALENCE RECOGNITION IN THE UNITED KINGDOM EQUIVALENCE CRITERIA LEGISLATION EQUIVALENCE RECOGNITION IN THE UNITED KINGDOM EQUIVALENCE CRITERIA

17. Electronic Commerce (a) The provisions of the Electronic Commerce (EC Directive) (i) The third country’s legal 20. Banking Act 2009 (a) Third-country resolution proceedings applied by the authorities of (i) The third country’s legal and/ (EC Directive) Regulations 2002/2013 and Electronic Commerce Directive (Financial system provides reciprocal and the relevant third country pursuant to the third country’s legal and/ or supervisory regime applies [Recognition of third Regulations Services and Markets) Regulations 2002/1775 shall (as described in a equivalent rights and protections or supervisory regime to third-country institutions or third-country equivalent principles to those country resolution 2002/2013, particular recognition decision or mutual recognition agreement and to persons and entities located in parent undertakings* (as described in a particular recognition applied in the United Kingdom subject to any specific conditions) be treated under the law of the the United Kingdom as provided proceedings] decision or mutual recognition agreement and subject to any under Part 1 of the Banking Electronic Commerce United Kingdom as extending applicable rights to persons and entities in the Electronic Commerce (EC specific conditions) shall (subject to the terms of the specific mutual Act 2009 to the recovery and Directive (Financial located in the relevant third country including those corresponding to Directive) Regulations 2002/2013 recognition agreement) be treated under the law of the United resolution of third-country Services and service providers, consumers*, and recipients of the e-society service. and Electronic Commerce Kingdom as third-country resolution proceedings which are to be institutions or a third-country Markets) Regulations Directive (Financial Services and recognised under section 89H of the Banking Act 2009 and which parent undertaking. * In this row the term «consumer» means a consumer within the meaning 2002/1775 of Article 2(e) of Directive 2000/31/EC (as implemented by the Act). Markets) Regulations 2002/1775. shall be implemented with legal effect in the United Kingdom in accordance with section 89I of the Banking Act 2009. [E-Commerce] * In this row the terms «third-country institution» and «third-country 18. Electronic Money (a) Entities supervised in the relevant third country (as described in a (i) The third country’s legal and/ parent undertaking» have the same meanings given to those terms in Part 1 of the Banking Act 2009. Regulations 2011/99 particular recognition decision or mutual recognition agreement and or supervisory regime applies to subject to any specific conditions) and authorised as, or operating, the third country entities referred 21. Alternative (a) Undertakings supervised in the relevant third country and [Electronic money an electronic money institution shall be treated under the law of to in point (a) requirements authorised as an ELTIF (as described in a particular recognition the United Kingdom as having the same rights as electronic money that are equivalent to those that Investment Fund services, electronic decision or mutual recognition agreement and subject to any specific institutions granted authorisation pursuant to the Electronic Money are required to be applied to Managers Regulations money institutions] conditions) shall be treated under the law of the United Kingdom Regulations 2011/99, with the effect that such third country entities electronic money institutions 2013/1773 as having the same rights as ELTIFs authorised pursuant to the shall be able to pursue the activity of issuing electronic money within authorised pursuant to the [ELTIFs] Alternative Investment Fund Managers Regulations 2013/1773 (as the United Kingdom, either by establishing a branch or by providing Electronic Money Regulations * described in a particular recognition decision or mutual recognition such services (including the services referred to in Article 18 of 2011/99. agreement and subject to any specific conditions). Directive (EU) 2015/2366) (as implemented by the Act), as referred to in Article 28 of Directive (EU) 2015/2366 (as implemented by the (b) Undertakings supervised in the relevant third country and Act) applying to electronic money institutions mutatis mutandis authorised as, or to operate, a manager of an ELTIF (as described in pursuant to Article 3(1) of Directive 2009/110/EC (as implemented by a particular recognition decision or mutual recognition agreement the Act) (as described in a particular recognition decision or mutual and subject to any specific conditions) shall be treated under the recognition agreement and subject to any specific conditions). law of the United Kingdom as having the same rights as EU AIFMs authorised to manage ELTIFs pursuant to the Alternative Investment (b) Point (a) does not prejudice the ability of the third country entities Fund Managers Regulations 2013/1773 (as described in a particular referred to in point (a) or (b) of row 6 of this table that are authorised recognition decision or mutual recognition agreement and subject to in the relevant third country to carry out activities corresponding any specific conditions). to «issuing electronic money» (as referred in Annex I of Directive 2013/36/EU), where any relevant recognition decision or mutual 22. Regulation (EU) (a) Undertakings supervised in the relevant third country and recognition agreement has included the equivalence recognition No 345/2013 (as authorised as a qualifying venture capital fund (as described in a provision at row 6 of this table. implemented under particular recognition decision or mutual recognition agreement and * In this row the term «branch» means a branch within the meaning of the Act) subject to any specific conditions) shall be treated under the law of Article 4(39) of Directive (EU) 2015/2366 (as implemented by the Act). the United Kingdom as having the same rights as a qualifying venture [EuVECA] capital fund authorised pursuant to Regulation (EU) No 345/2013 (as 19. Payment Services (a) Entities supervised in the relevant third country (as described in (i) The third country’s legal and/ implemented by the Act) (as described in a particular recognition Regulations a particular recognition decision or mutual recognition agreement or supervisory regime applies to decision or mutual recognition agreement and subject to any specific 2009/209 and subject to any specific conditions) and authorised as, or to the third country entities referred conditions). operate, a payment institution shall be treated under the law of the to in point (a) requirements which [Payment Services] United Kingdom as having the same rights as a payment institution are equivalent to those which (b) Undertakings supervised in the relevant third country and authorised pursuant to the Payment Services Regulations 2009/209, are required to be applied to authorised as, or to operate, a manager of a qualifying venture capital with the effect that such third country entities shall be able to provide payment institutions authorised fund (as described in a particular recognition decision or mutual and execute payment services (including the services referred to in pursuant to the Payment Services recognition agreement and subject to any specific conditions) shall Article 18 of Directive (EU) 2015/2366 (as implemented by the Act)) Regulations 2009/209. be treated under the law of the United Kingdom as having the same throughout the United Kingdom, either by establishing a branch* or rights as a manager of a qualifying venture capital fund authorised providing such services (as implemented by the Act) (as described in pursuant to Regulation (EU) No 345/2013 (as implemented by the a particular recognition decision or mutual recognition agreement and Act) (as described in a particular recognition decision or mutual subject to any specific conditions). recognition agreement and subject to any specific conditions). (b) Point (a) does not prejudice the ability of the third country entities referred to in point (a) of row 6 of this table that are authorised in the relevant third country to carry out activities corresponding to those carried out by electronic money issuers** where any relevant recognition decision or mutual recognition agreement has included the equivalence recognition provision at row 6 of this table. (c) Point (a) does not prejudice the ability of the third country * In this row the term «branch» means a branch within the meaning entities referred to in point (a) or (b) of row 18 of this table that of Article 4(39) of Directive (EU) are authorised in the relevant third country to carry out activities 2015/2366 (as implemented by corresponding to «issuing electronic money» (as referred in Annex I the Act). of Directive 2013/36/EU (as implemented under the Act), where any ** In this point the term «electronic money issuers» means an electronic recognition decision or mutual recognition agreement has included money issuer as defined in Article the equivalence recognition provision at row 18 of this table. 2(1) of the Electronic Money Regulations 2011/99. DRAFT UK IMPLEMENTATION OF THE EQUIVALENCE REGULATION OF THE EQUIVALENCE Appendix B DRAFT UK IMPLEMENTATION

116 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 117 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

74 RELEVANT UNITED KINGDOM DESCRIPTION OF EFFECT OF AGREED ADDITIONAL (c) Annex III of the Regulation is incorporated in the following amended form: LEGISLATION EQUIVALENCE RECOGNITION IN THE UNITED KINGDOM EQUIVALENCE CRITERIA

23. Regulation (EU) Undertakings supervised in the relevant third country and authorised RELEVANT UNITED KINGDOM LEGISLATION EXISTING RECOGNITION PROVISION No 346/2013 (as as a qualifying social entrepreneurship fund (as described in a Directive 2003/71/EC (as implemented by the Act) Article 20(3) implemented by the particular precognition decision or mutual recognition agreement and subject to any specific conditions) shall be treated under the law of Act) Commission Regulation (EC) No 809/2004 (as implemented by the Act) Article 35 the United Kingdom as having the same rights as a qualifying social [EuSEF] entrepreneurship fund authorised pursuant to Regulation (EU) No Directive 2004/109/EC (as implemented by the Act) Article 23(4) sub-paragraph 3 346/2013 (as implemented by the Act) (as described in a particular precognition decision or mutual recognition agreement and subject to Directive 2004/109/EC (as implemented by the Act) Article 23(4) any specific conditions). Directive 2013/34/EU (as implemented by the Act) Article 46 (c) Undertakings supervised in the relevant third country and authorised as, or to operate, a manager of a qualifying social Regulation (EC) No 1060/2009 (as implemented by the Act) Article 5(6) entrepreneurship fund (as described in a particular recognition decision or mutual recognition agreement and subject to any specific Directive 2006/43/EC (as implemented by the Act) Article 47(3) conditions) shall be treated under the law of the United Kingdom Directive 2006/43/EC (as implemented by the Act) Article 46(2) as having the same rights as a manager of a qualifying social entrepreneurship fund authorised pursuant to Regulation (EU) No Regulation (EU) No 648/2012 (as implemented by the Act) Article 1(6) 346/2013 (as implemented by the Act) (as described in a particular precognition decision or mutual recognition agreement and subject to Regulation (EU) No 648/2012 (as implemented by the Act) Article 2a any specific conditions). Regulation (EU) No 648/2012 (as implemented by the Act) Article 13(2)

Regulation (EU) No 648/2012 (as implemented by the Act) Article 25(2)

Regulation (EU) No 648/2012 (as implemented by the Act) Article 75(1)

Regulation (EU) No 909/2014 (as implemented by the Act) Article 25(6)

Regulation (EU) 2015/2365 (as implemented by the Act) Article 2(4)

Regulation (EU) 2015/2365 (as implemented by the Act) Article 19(1)

Regulation (EU) 2015/2365 (as implemented by the Act) Article 21(1)

Regulation (EU) 2016/1011 (as implemented by the Act) Article 30(2)

Regulation (EU) 2016/1011 (as implemented by the Act) Article 30(3)

Regulation (EU) No 236/2012 (as implemented by the Act) Article 17(2)

Regulation (EU) No 596/2014 (as implemented by the Act) Article 6(5)

Regulation (EU) No 596/2014 (as implemented by the Act) Article 6(6)

Regulation (EU) No 600/2014 (as implemented by the Act) Article 1(9)

Regulation (EU) No 600/2014 (as implemented by the Act) Article 28(4)

Regulation (EU) No 600/2014 (as implemented by the Act) Article 33(2)

Regulation (EU) No 600/2014 (as implemented by the Act) Article 38

Regulation (EU) No 600/2014 (as implemented by the Act) Article 47(1)

Directive 2014/65/EU (as implemented by the Act) Article 25(4)(a)

Regulation (EU) No 575/2013 (as implemented by the Act) Article 107(4)

Regulation (EU) No 575/2013 (as implemented by the Act) Article 114(7)

Regulation (EU) No 575/2013 (as implemented by the Act) Article 115(4)

Regulation (EU) No 575/2013 (as implemented by the Act) Article 116(5)

Regulation (EU) No 575/2013 (as implemented by the Act) Article 142(2)

Directive 2009/138/EC (as implemented by the Act) Article 172(2)

Directive 2009/138/EC (as implemented by the Act) Article 227(4) or 227(5)

Directive 2009/138/EC (as implemented by the Act) Article 260(3) or 260(5)

DRAFT UK IMPLEMENTATION OF THE EQUIVALENCE REGULATION OF THE EQUIVALENCE Appendix B DRAFT UK IMPLEMENTATION 74 NOTE: As per the approach taken in the Equivalence Regulation, Annex III is a list of equivalence provisions (and equivalence decisions made under them) which should become governed by the reformed processes of the Equivalence Regulation (as implemented under UK law), and if a mutual recognition agreement is entered into between the UK and any other third country, it should subsequently become governed under the procedural protections of the Bilateral Agreement under transitional provisions in the relevant mutual recognition agreement.

118 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 119 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

Appendix C DRAFT EU-UK BILATERAL AGREEMENT

120 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 121 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

Bilateral Agreement between the European Union and its Member States, of the one part, and the United Kingdom of Great Britain and Northern Ireland, of the other part

RECITALS

The European Union and its Member States (the of financial services regulation, supervision and “Union”), of the one part, and the United Kingdom enforcement are applied by both Parties, which of Great Britain and Northern Ireland (the “United achieve the key regulatory outcomes of reducing Kingdom”), of the other part (each of the Union and systemic risks and (in a retail context) adequately the United Kingdom being referred to hereafter as ensure consumer protection, regardless of the a “Party”, and hereafter referred to together as the particular manner or approach taken by either Party in “Parties”), resolve to: achieving those key outcomes; AND Appendix C DRAFT EU-UK BILATERAL AGREEMENT FURTHER AND CONTINUE, their close historical, BY agreeing detailed terms and conditions under political and economic relationship; which each Party will recognise the financial services regime applied by the other Party as equivalent CREATE a broad and comprehensive cross-border in achieving the key regulatory outcomes, and market for financial services products and services confirming the national legal effect that is granted as PROPOSED to be provided in a secure regulatory environment a result of the sector of financial services regulation of subject to the application of equivalent financial a Party that is agreed to be treated as equivalent to services regulation, supervision and enforcement; the standards of financial services regulation applied STRUCTURE by the other Party in that same sector. BY formally recognising that equivalent standards FOR AN EU-UK BILATERAL 1. DEFINITIONS75 01. ‘agreed equivalence recognitions’ means the 05. ‘DSU’ means the Understanding on Rules and recognitions which have been agreed in Article 3 and Procedures Governing the Settlement of Disputes, AGREEMENT as further detailed in Schedule 1, whereby each Party contained in Annex 2 to the WTO Agreement; confirms the sector of the financial services regulatory regime of the other party which is agreed to be 06. ‘equivalence change’ means a request to amend equivalent and the national legal effect that is intended the legal effect of an agreed equivalence recognition to result from the relevant equivalence recognition; or a request to supplement the agreed equivalence recognitions with further provisions or a request to 02. ‘Commission’ means the European Commission; remove a provision from the agreed equivalence recognitions; 03. ‘disagreement on compliance’ has the meaning specified in Article 8.35; 07. ‘equivalent’ means requirements or standards applicable within the jurisdiction of a Party that are 04. ‘disagreement on suspension’ has the meaning materially similar to the corresponding requirements specified in Article 8.35; or standards that are applied in the jurisdiction of

75 NOTE: These definitions, as with the other provisions, are partial sketches of the structure of an EU-UK bilateral mutual recognition agreement, and are not intended to be exhaustive or conclusive. Appropriate definitions from GATS may be included by reference.

122 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 123 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

the other Party. Whether requirements or standards BANKING AND OTHER FINANCIAL SERVICES (xiv) settlement and clearing services for or legal entity (whether or not incorporated or are equivalent shall be determined, primarily, upon (EXCLUDING INSURANCE) financial assets, including securities, derivative otherwise established under the jurisdiction of either whether the following outcomes are achieved, taking products, and other negotiable instruments; Party) which is entitled to the benefit of an agreed into account that alternative approaches achieving (v) acceptance of deposits and other repayable equivalence recognition as described in Schedule 1; the same outcomes may legitimately be adopted and funds from the public; (xv) provision and transfer of financial information, that legislation and regulation may address matters in and financial data processing and related software 16. ‘relevant regulatory development’ means: (i) a different ways and still achieve the same outcome: (vi) lending of all types, including consumer by suppliers of other financial services proposed or new legislative development in either Parties’ credit, mortgage credit, factoring and financing jurisdiction which, if proposed could, or if already effective (a) there is, in a retail context, adequate protection of commercial transaction; advisory, intermediation and other auxiliary financial does, alter the previously agreed legal effect in either for consumers, investors, deposit holders, policy services on all the activities listed in subparagraphs (v) Parties’ jurisdiction of an agreed equivalence recognition; holders and/or any other persons who may be (vii) financial leasing; through (xv), including credit reference and analysis, or (ii) a proposed or new legislative development in owed a fiduciary or other similar duty; investment and portfolio research and advice, advice either Parties’ jurisdiction which, if proposed could be, or (viii) all payment and money transmission on acquisitions and on corporate restructuring and if already effective is, relevant to determining whether (b) there is no significant risk of increased services, including credit, charge and debit cards, strategy; the recognition conditions applicable to an agreed systemic risk in the market for financial services travellers cheques and bankers drafts; equivalence recognition remain satisfied; within the jurisdiction of a Party. 09. ‘GATS’ means the General Agreement on Trade in (ix) guarantees and commitments; Services and the GATS Annex on Financial Services; 17. ‘Tribunal’ means the tribunal established under The fact that a specific standard or requirement is Article 9; applicable in the jurisdiction of a Party shall not affect (x) trading for own account or for account of 10. ‘material’ and ‘materially’ shall be interpreted whether standards of the other Party are equivalent, customers, whether on an exchange, in an over- primarily with reference to relevant international 18. ‘UK recognition body’ means the [description of unless the specific standard or requirement is also the-counter market or otherwise, the following: standards, guidance, conventions and agreements, representative body] which will represent the United applied generally in relevant international standards, any relevant technical guidance issued by international Kingdom in all matters relating to this Agreement; guidance, or conventions, or unless the outcomes (A) money market instruments (including bodies or financial services markets associations; listed in points (a) - (b) are not satisfied; cheques, bills, certificates of deposits); 19. ‘UNCITRAL Arbitration Rules’ means the 11. ‘New York Convention’ means the United Nations arbitration rules of the United Nations Commission on 08. ‘financial services’ means [any service of a (B) foreign exchange; Convention on the Recognition and Enforcement of International Trade Law; financial nature offered by a financial service supplier Foreign Arbitral Awards; of a WTO Member. Financial services include all (C) derivative products including, but not 20. ‘UNCITRAL Transparency Rules’ means the insurance and insurance-related services, and all limited to, futures and options; 12. ‘recognition conditions’ has the meaning UNCITRAL Rules on Transparency in Treaty-based banking and other financial services (excluding specified in Article 3.4; Investor-State Arbitration; insurance). Financial services may include the (D) exchange rate and interest rate following activities: instruments, including products such as 13. ‘recognition principles’ has the meaning specified 21. ‘Vienna Convention on the Law of Treaties’ swaps, forward rate agreements; in Article 2.1; means the Vienna Convention on the Law of Treaties, INSURANCE AND INSURANCE-RELATED concluded on 23 May 1969; SERVICES (E) transferable securities; 14. ‘Regulatory Committee’ has the meaning specified in Article 5.1; 22. ‘WTO Agreement’ means the Marrakesh (i) direct insurance (including co-insurance): (F) other negotiable instruments and Agreement Establishing the World Trade Organisation, financial assets, including bullion. 15. ‘relevant private party’ means any natural person concluded on 15 April 1994. (A) life (xi) participation in issues of all kinds of (B) non-life securities, including underwriting and placement as agent (whether publicly or (ii) reinsurance and retrocession; privately) and provision of services related 2. EQUIVALENCE RECOGNITION PRINCIPLES to such issues; (iii) insurance intermediation, such as brokerage and agency; (xii) money broking; 01. The following principles in this Article 02. The Parties’ recognition of equivalence is 2 are designated as ‘recognition principles’ intended to foster the expansion of trade in financial (iv) services auxiliary to insurance, such as (xiii) asset management, such as cash or portfolio for the purposes of governing the mutual services by promoting regulatory convergence consultancy, actuarial, risk assessment and claim management, all forms of collective investment recognition relationship established between with international norms, reducing supervisory and settlement services; management, pension fund management, the Parties under this Agreement and in prudential burdens, and increasing the choices of custodial, depository and trust services; accordance with the principles established in financial services and products available to customers

DRAFT EU-UK BILATERAL AGREEMENT Appendix C DRAFT EU-UK BILATERAL Article VII of the GATS. and undertakings located in the Parties’ jurisdictions.

124 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 125 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

GOOD FAITH NON-DISCRIMINATION [in particular under Article 9], nothing in this (ii) existing regulatory authorisations; and Agreement shall be construed as conferring rights 03. The Parties commit to acting in good faith in all 08. Each of the Parties shall ensure that its laws, or imposing obligations on persons other than those (iii) the laws of the United Kingdom and/or matters relating to this Agreement and in making regulations, procedures, supervision, enforcement created between the Parties pursuant to the terms of the Union. further legislative or regulatory developments within and judicial rulings do not subject financial services this Agreement [(this does not affect any other rights their respective jurisdictions which may have an effect suppliers authorised by and/or established in another that persons other than the Parties may be entitled 15. The Parties agree to enact legislation in their on the agreed equivalence recognitions contained Party’s jurisdiction to less favourable treatment than to under the domestic legal system of either Party respective jurisdictions to give effect to Article 2.14 in this Agreement. This may include consulting and like financial services suppliers authorised by and/ on the grounds that a Party has adopted a measure [prior to [Date of Brexit]]. cooperating with the other Party in extending agreed or established in its own jurisdiction [or like financial or otherwise conducted itself in a manner that is equivalence recognitions to further sectors or areas of services suppliers authorised by and/or established in inconsistent with this Agreement]. COMPLIANCE WITH ARTICLE VII OF THE GATS financial services where equivalence recognitions have any other country]. not yet been agreed between the Parties. CONTRACTUAL CONTINUITY 16. In compliance with Article VII:3 of the GATS, 09. In particular, the Parties shall ensure that there equivalence recognitions shall not be granted TRANSPARENCY, OBJECTIVITY AND is no discrimination between natural or legal persons 14. The Parties agree that neither the United in a manner that would constitute a means of IMPARTIALITY based on the official currency that is used in either Kingdom’s withdrawal from the Union on [Date discrimination between any Party to this Agreement Party’s jurisdiction, or the currency that has legal of Brexit] nor any other events or procedures in and any other WTO Member in the application 04. The Parties commit to applying the agreed tender in either Party’s jurisdiction, where that natural preparation for or consequent to such withdrawal of such Party’s standards or criteria for the equivalence recognitions that have been included or legal person is established. shall: authorisation, licensing or certification of services pursuant to the terms of this Agreement in a suppliers, or a disguised restriction on trade in reasonable, objective and impartial manner. EQUIVALENCE (a) in itself constitute an event of default, services. termination event or frustrating event under any 05. Each Party commits to ensuring that its laws, 10. The agreed equivalence recognitions are contracts entered into prior to [Date of Brexit]; 17. In accordance with Article VII:2 of the GATS, the regulations, procedures, supervision, enforcement premised on the Parties achieving the same key or Parties shall afford adequate opportunity for other and judicial rulings which apply generally to the regulatory outcomes, but not necessarily adopting interested WTO Members to negotiate their accession financial services businesses that are designated in the same approach or legal wording. Alternative (b) in relation to financial services, affect any to this Agreement or to negotiate agreements Schedule 1 as being entitled to the agreed equivalence approaches from those taken by one Party in reducing rights (including market access rights) existing comparable to this Agreement. recognitions: prudential risk or achieving other regulatory outcomes or accrued prior to [Date of Brexit], including but may legitimately be adopted within the framework of not limited to rights under: 18. In accordance with Article VII:4(b) of the GATS, (a) are applied in a reasonable, objective and continuing equivalence, so long as the Party remains each Party shall promptly inform the Council for impartial manner; equivalent by achieving the same key regulatory (i) contracts entered into prior to [Date of Trade in Services when it adopts new equivalence outcomes. Brexit] between or involving parties from recognition measures or significantly modifies existing (b) in the event of a proposed law, regulation the United Kingdom and/or the Union; ones under this Agreement. or procedure, are published in advance with a ASSESSMENTS OF EQUIVALENCE reasonable opportunity for interested persons and the other Party to provide comment to the 11. Any assessments of the equivalence of the whole, extent possible. or any aspect of a Party’s legal and/or supervisory financial services regime shall only consider material 3. AGREED EQUIVALENCE RECOGNITIONS LEGAL EFFECT AND INCONSISTENT ACTS factors based primarily on relevant international standards. 06. The agreed equivalence recognitions are based 01. The Parties have agreed that the agreed 03. The agreed equivalence recognitions are intended on the Parties giving legal effect to the agreed 12. Assessments of equivalence should only consider equivalence recognitions shall consist of the to have the legal effect that is described in full detail equivalence recognitions (subject to any specific material factors based on relevant technical advice, equivalence recognitions, their corresponding legal in Schedule 1 and the Parties shall ensure that each terms and conditions contained in Schedule 1 [and including advice that the Parties may request from effect in each Party’s respective jurisdictions, and shall provision shall have that legal effect subject to the unless otherwise specified, on a reciprocal basis]. any relevant specialist national bodies (and any be subject to the recognition conditions, as detailed in terms and conditions (if any) specified in relation to a previously issued guidance from such bodies) and in a Schedule 1 of this Agreement. particular agreed equivalence recognition. 07. The Parties shall ensure that measures are not manner which is proportionate to the level and nature adopted in their respective jurisdictions which are of access that is agreed under the agreed equivalence 02. The Parties shall ensure that the agreed 04. The ‘recognition conditions’ applicable to the inconsistent with the legal effect that the agreed recognitions. equivalence recognitions shall be fully implemented agreed equivalence recognitions means: equivalence recognitions are intended to have, as with legal effect within their respective legal described in Article 3 and Schedule 1, unless the PRIVATE LAW REMEDIES systems for the benefit of the entities that have (a) for the Union, the conditions listed in Article relevant change procedures contained in Article 10 been designated as entitled to the relevant agreed 3 of the [Equivalence Regulation], and any

DRAFT EU-UK BILATERAL AGREEMENT Appendix C DRAFT EU-UK BILATERAL have been complied with. 13. Unless specifically provided for in this Agreement equivalence recognitions in Schedule 1. other additional conditions that have been

126 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 127 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

specified as applicable to the agreed equivalence (D) the participation of foreign capital recognitions detailed in Schedule 1; and in terms of maximum percentage 4. COOPERATION AGREEMENTS limit on foreign shareholding in (b) for the United Kingdom, the conditions listed financial institutions or the total value in Article 3 of the [Equivalence Regulation as of individual or aggregate foreign 01. [The Parties shall take all reasonable steps to their legal and regulatory regimes and/or shall incorporated into the law of the United Kingdom investment in financial institutions; or ensure the terms of the cooperation agreements otherwise ensure that the commitments made in pursuant to the European Withdrawal Act 20[•] contained in Schedule [•] are implemented within those cooperation agreements are complied with.]77 (Mutual Recognition Regulation) Order 20[•]], (E) the total number of natural and any other additional conditions that have persons that may be employed in a been specified as applicable to the agreed particular financial services sector equivalence recognitions detailed in Schedule 1. or that a financial institution may employ and who are necessary 5. REGULATORY COMMITTEE 05. For the avoidance of doubt, the parties are for, and directly related to, the required to observe principles of non-discrimination performance of a specific financial as established by the equivalence recognitions, which service in the form of numerical 01. The Parties have agreed to establish a the legal regime of either Party and issuing includes, but is not limited to the following grants of quotas or the requirement of an regulatory committee for the purposes of assisting recommendations [where it deems necessary]]; non-discriminatory market access: economic needs test; or and monitoring the mutual recognition relationship established under this Agreement (the “Regulatory (e) [monitoring developments in the legal (a) Each Party must permit the supply of a financial (ii) restricts or requires specific types of Committee”). systems of either Party, and [where requested] service from the territory of a Party into the territory legal entity or joint venture through which making recommendations to the Commission of the other Party, as well as in the territory of one a financial institution may perform an 02. The Regulatory Committee’s roles shall consist of: or the UK recognition body, or initiating the Party to a service consumer of the other Party; economic activity.76 mediation process where the Regulatory (a) [reviewing international developments, or Committee believes there is a risk of breach of (b) A Party shall not adopt or maintain, with 06. Provided it does not circumvent Article 3.5 developments within the Parties’ respective the terms of the Agreement and in particular the respect to a financial services supplier of above and is consistent with other provisions of this financial services regimes]; recognition conditions]; and the other Party supplying services through Agreement, either party may: commercial presence, on the basis of a regional (b) [initiating the consultation process specified (f) [participating in the consultation, mediation subdivision or on the basis of its entire territory, (a) impose terms, conditions, and procedures in Article 6 and issuing recommendations to or dispute resolution processes of this a measure that: for the authorisation of the establishment and the Commission and UK recognition body Agreement in accordance with any relevant expansion of a commercial presence; and/or regarding the implementation of the terms of procedures established under, and the provisions (i) imposes limitations on: the Agreement, and coordinating developments of, this Agreement ].78 (b) require a financial institution to supply and reforms in the legal regimes of the Parties]; (A) the number of financial services certain financial services through separate legal 03. The Regulatory Committee shall consist of [3] suppliers, whether in the form of entities if, under the law of the Party, the range (c) [at its own initiative, or ]where requested permanent members appointed by the United Kingdom numerical quotas, monopolies, of financial services supplied by the financial by the Commission or the UK recognition body, and [3] permanent members appointed by the Union. exclusive service suppliers or the institution may not be supplied through a single considering whether the terms of the Agreement requirement of an economic needs test; entity. are not satisfied or complied with, and issuing 04. The Regulatory Committee’s permanent recommendations [or initiating the consultation members shall elect a seventh member to carry out (B) the total value of financial service process under Article 6 where the Regulatory the functions of the chairperson of the Regulatory transactions or assets in the form of Committee deems necessary]; Committee, at its first meeting by mutual consent numerical quota or the requirement of the permanent members, and thereafter in of an economic needs test; (d) [[at its own initiative, or ]where requested accordance with any relevant internal procedures by the Commission or the UK recognition body, established by the Regulatory Committee. (C) the total number of financial considering whether proposed changes or reforms service operations or the total quantity ought to be made to the respective legal regimes 05. The Regulatory Committee shall conduct itself of financial services output expressed of either Party in accordance with developments by majority vote, and in the event of a tied vote, the in terms of designated numerical in international standards or developments in chairperson shall cast the final binding vote. units in the form of quotas or the requirement of an economic needs test;

77 NOTE: A comprehensive range of detailed cooperation agreements will have to be negotiated amongst EU, member state and UK regulators. One key benefit of the enhanced equivalence structure is that extensive regulatory input, discussion and data sharing can be facilitated (if this is politically viable). Both parties will benefit from early visibility and coordination of regulatory developments. DRAFT EU-UK BILATERAL AGREEMENT Appendix C DRAFT EU-UK BILATERAL 76 NOTE: finalised negotiated text must ensure compliance with non-discriminatory requirements of Art. VII, GATS. 78 NOTE: Indicative possible roles for the Regulatory Committee.

128 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 129 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

06. The Regulatory Committee shall adopt its every [•]] / [in accordance with its established otherwise. Consultations may be held in person or by ROLE OF THE REGULATORY COMMITTEE intended procedures initially by mutual consent of the procedures, as necessary] to carry out its duties. any other means agreed between the Parties. permanent members, and subsequently in accordance 12. [The Regulatory Committee may, if it decides with Article 5.5. 09. The Regulatory Committee shall be able to IMPLEMENTATION OF MUTUALLY AGREED necessary and in accordance with any internal request specialist technical, legal or other advice SOLUTIONS procedures it prescribes for the purposes of this 07. The Regulatory Committee’s chairperson, and employ ancillary additional staff if it considers provision, submit a written request for consultations permanent members and any other ancillary staff necessary. 10. Where the Parties have concluded a mutually with the Parties.] shall be chosen on the basis of appropriate experience agreed solution, each Party shall take the measures in financial services law, regulation, practice or other 10. The costs of the Regulatory Committee shall be necessary to implement the mutually agreed 13. The Regulatory Committee may prescribe relevant experience. shared equally by the Parties. solution within any relevant agreed timeframe. detailed procedures for the purposes of this Article 6[, including provisions regarding its involvement, 08. The Regulatory Committee shall meet [at least 11. [...]79 11. [A Party’s request for consultation and if relevant, [in initiating and] assisting or otherwise the mutually agreed solution that arises in participating in the consultation and coordination relation to a relevant regulatory development process.] or an equivalence change may be the subject of consultations under this Article 6 but may In accordance with Article VII:4(c) of the GATS, the 80 14. 6. CONSULTATION AND COORDINATION not be the subject of mediation under Article Regulatory Committee shall promptly inform the Council 7 or the dispute settlement procedures under for Trade in Services when it adopts new recognition Article 8.]81 measures or significantly modifies existing ones. 01. The UK recognition body shall notify the 06. In cases of urgency, including events of Commission [and the Regulatory Committee] significant systemic risk to the financial services promptly upon becoming aware of a relevant sectors of either of the Parties, consultations shall regulatory development. commence within [15] days of the date of receipt of the request by the responding Party. 7. MEDIATION 02. The Union shall notify the UK recognition body [and the Regulatory Committee] promptly 07. The Parties shall make every attempt to arrive upon becoming aware of a relevant regulatory at a mutually satisfactory resolution of the matter 01. A Party may initiate the mediation process with (c) if relevant, propose a desired remedy or development. through consultations. To this end, each Party shall: the other Party regarding [any matter arising under agreement that may be considered by the this Agreement] / [any matter falling within Article Parties at the conclusion of the mediation 03. A Party may submit a written request for (a) provide sufficient information to enable a full 8.2]. process. consultations with the other Party regarding a examination of the matter at issue; relevant regulatory development, any dispute 02. The Parties shall conduct themselves in good 04. The responding Party may agree to the dates, concerning the interpretation or application of the (b) protect any confidential or proprietary faith throughout the mediation process and provide location and other administrative details for the provisions of this Agreement, or for the purposes of information exchanged in the course of sympathetic consideration to the relevant issues that mediation that have been proposed by the initiating the change mechanisms set out in Article 10. consultations as requested by the Party have been raised by the initiating Party. Party or may respond with alternative proposals. The providing the information; and responding Party shall also inform the Regulatory 04. The requesting Party shall transmit the request 03. A Party may initiate the mediation process by Committee of its response. for consultation to the responding Party, and shall (c) make available the personnel of its providing a written notice for requesting mediation set out the reasons for the request for consultation, government agencies or other regulatory bodies to the other Party [and the Regulatory Committee] 05. The Party that wishes to initiate the mediation including, if relevant, the identification of the specific who have expertise in, and the relevant authority with details of a proposed date, location and other process shall confirm in writing to the other Party measure [or Party’s conduct] at issue, the legal basis to implement solutions which address, the administrative terms for the mediation process. The and the Regulatory Committee whether or not it has for the request, any complaint or any proposal relating matter that is the subject of the consultations. written notice must: agreed to any alternative proposals submitted by the to a request for consultation pursuant to the change responding Party under Article 7.4. mechanisms under Article 10. 08. Consultations are confidential and without prejudice (a) identify the specific issue triggering the to the rights of the Parties in proceedings under Article 8. request for mediation; 06. The Parties shall make all reasonable efforts to 05. Subject to Article 6.6, the Parties shall enter into agree on the date, location and other administrative consultations within [30] days of the date of receipt 09. Consultations shall take place in the territory (b) provide a statement of alleged consequences details of the mediation. If this is not possible of the request by the responding Party. of the responding Party unless the Parties agree arising from the specified issue; and within [5] days of the written request to initiate

79 NOTE: Additional details to be added as negotiated between the Parties. 81 NOTE: The consultation provision (and agreements arising out of it) is intended to be an informal venue for the Parties to reach an agreement on general matters relating to the administration of the recognition relationship prior to initiation of the formal dispute resolution phases (mediation and dispute DRAFT EU-UK BILATERAL AGREEMENT Appendix C DRAFT EU-UK BILATERAL 80 NOTE: The consultation provisions are based on CETA, which may provide an indication as to what is negotiable from an EU perspective. resolution).

130 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 131 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

the mediation process being sent, the Regulatory process assist and make recommendations to assist two fora. In such case, once a dispute settlement the requesting Party may refer the matter to Committee shall confirm the date, venue and other the Parties in reaching a mutually agreed solution. proceeding has been initiated under one agreement, arbitration by providing its written request for administrative terms of the mediation, which the the Party shall not bring a claim seeking redress for the establishment of an arbitration panel to the Parties shall comply with. 11. A mutually agreed solution may be reached by the breach of the substantially similar obligation responding Party. the Parties describing the relevant terms and any under the other agreement, unless the forum selected 07. The mediation process shall continue for an initial commitments that have been agreed by the Parties in fails, for procedural or jurisdictional reasons to make 08. The requesting Party shall identify in its written period of [30] days from the commencement date agreed a document that refers to this Article 7. findings on that claim. request the specific measure at issue and the legal by the Parties under Article 7.4 or 7.5 or confirmed by the basis for the complaint, including an explanation Regulatory Committee under Article 7.6. IMPLEMENTATION OF MUTUALLY AGREED 05. For the purposes of Article 8.4: of how such measure constitutes a breach of the SOLUTIONS provisions referred to in Article 8.2. 08. The Parties may by mutual agreement extend (a) dispute settlement proceedings under the the mediation process [for a maximum duration of [•] 12. Where the Parties have concluded a mutually GATS are deemed to be initiated by a Party’s COMPOSITION OF THE ARBITRATION PANEL days from the initial commencement date agreed by agreed solution, each Party shall take the measures request for the establishment of a panel under the Parties under Article 7.4 or 7.5 or confirmed by the necessary to implement the mutually agreed solution Article 6 of the DSU; 09. The arbitration panel shall be composed of Regulatory Committee under Article 7.6]. within any relevant agreed timeframe. [three] arbitrators. (b) dispute settlement proceedings under this 09. At the end of the initial period (or any agreed 13. Failure to implement the mutually agreed Article 8 are deemed to be initiated by a Party’s 10. The Parties shall consult with a view to reaching extension pursuant to Article 7.8) of the mediation solution within any relevant agreed timeframes in request for the establishment of an arbitration an agreement on the composition of the arbitration process, the Parties shall: (i) reach a mutually agreed accordance with the terms of the mutually agreed panel under Article 8.7; and panel within [10] working days of the date of receipt solution; or (ii) if a mutually agreed solution has not solution entitles either Party to initiate the dispute by the responding Party of the request for the been reached by the date that the mediation process resolution process under Article 8 notwithstanding (c) dispute settlement proceedings under any establishment of an arbitration panel. terminates, either Party may choose to initiate the any other provision of this Agreement that might other agreement are deemed to be initiated by a dispute resolution process contained in Article 8. require the Party to undergo the consultation process Party’s request for the establishment of a dispute 11. In the event that the Parties are unable to agree under Article 6 or the mediation process under this settlement panel or tribunal in accordance with on the composition of the arbitration panel within 10. The Regulatory Committee may initiate the Article 7 before initiating the dispute resolution the provisions of that agreement. the time frame set out in Article 8.10, either Party mediation process and shall throughout the mediation process under Article 8. may request the chairperson of the Regulatory 06. Nothing in this Agreement shall preclude a Party Committee, or the chair’s delegate, to draw by lot from implementing the suspension of obligations the arbitrators from the list established under Article authorised by the WTO Dispute Settlement Body. A 8.16. One arbitrator shall be drawn from the sub- Party may not invoke the GATS to preclude the other list of the requesting Party, one from the sub-list of 82 8. DISPUTE RESOLUTION Party from suspending obligations pursuant to this the responding Party and one from the sub-list of Article 8. chairpersons. If the Parties have agreed on one or more of the arbitrators, any remaining arbitrator shall 01. The Parties shall, at all times, endeavour to CHOICE OF FORUM REQUEST FOR THE ESTABLISHMENT OF AN be selected by the same procedure in the applicable agree on the interpretation and application of this ARBITRATION PANEL sub-list of arbitrators. If the Parties have agreed Agreement, and shall make every attempt to arrive 03. [Recourse to the dispute settlement provisions on an arbitrator, other than the chairperson, who is at a mutually satisfactory resolution of any matter of this Article 8 is without prejudice to recourse to 07. Unless the Parties agree otherwise, if a matter not a national of either Party, the chairperson and that might affect its operation [(including under the dispute settlement under the WTO Agreement or referred to in Articles 6 or 7 has not been resolved other arbitrator shall be selected from the sub-list of consultation process under Article 6 or the mediation under any other agreement to which the Parties are within: chairpersons. process under this Article 7 before initiating the party.]83 dispute resolution process under this Article 8)]. (a) [45] days of the date of receipt of the 12. The chairperson of the Regulatory Committee, 04. Notwithstanding Article 8.3, if an obligation is request for mediation; or or the chair’s delegate, shall select the arbitrators as 02. Except as otherwise provided in this Agreement, materially similar in substance under this Agreement soon as possible and normally within [five] working this Article 8 applies to any dispute concerning the and under the GATS, or under any other agreement (b) [25] days of the date of receipt of the days of the request referred to in Article 8.11 by either interpretation or application of the provisions of this to which the Parties are party, a Party may not seek request for consultations for matters referred to Party. The chairperson of the Regulatory Committee, Agreement. redress for the breach of such an obligation in the in Article 6.6; or or the chair’s delegate, shall give a reasonable opportunity to representatives of each Party to be (c) in the case the Parties have engaged in present when lots are drawn. a mediation proceeding in accordance with 82 NOTE: The dispute resolution provision included here is based on CETA, which may be an indication of what is negotiable from an EU perspective. As with the other provisions of the draft EU-UK recognition agreement these provisions are illustrative and necessarily are entirely subject to the bilateral negotiations Article 7, if a mutually agreed solution has not 13. The date of establishment of the arbitration panel between the EU and the UK. been agreed by the date the mediation process shall be the date on which the last of the [three] 83 NOTE: CETA makes use of the WTO dispute resolution process, which may be a desirable option for the EU-UK recognition agreement. Consequential WTO DRAFT EU-UK BILATERAL AGREEMENT Appendix C DRAFT EU-UK BILATERAL terminates in accordance with Article 7.9, arbitrators is selected. references have been retained throughout this indicative EU-UK dispute resolution provision on this basis.

132 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 133 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

14. If the list provided for in Article 8.16 is not 19. Each Party may submit written comments to COMPLIANCE WITH THE FINAL PANEL REPORT TEMPORARY REMEDIES IN CASE established or if it does not contain sufficient names the arbitration panel on the interim report, subject OF NON-COMPLIANCE at the time a request is made pursuant to Article 8.11, to any time limits set by the arbitration panel. After 25. The responding Party shall take any measure the [three] arbitrators shall be drawn by lot from the considering any such comments, the arbitration panel necessary to comply with the final panel report. No 31. If: arbitrators who have been proposed by one or both of may: later than [20] days after the receipt of the final the Parties in accordance with Article 8.16. panel report by the Parties, the responding Party (a) the responding Party fails to notify its (a) reconsider its report; or shall inform the other Party [and the Regulatory intention to comply with the final panel report 15. Replacement of arbitrators shall take place Committee] of its intentions in respect of compliance. under Article 8.25 or the time it will require for only for the reasons and according to the procedure (b) make any further examination that it compliance under Article 8.26; [prescribed by the Regulatory Committee for the considers appropriate. REASONABLE PERIOD OF TIME FOR purposes of this Article] / [prescribed by Schedule [•] COMPLIANCE (b) at the expiry of the reasonable period of of this Agreement]. 20. The interim report of the arbitration panel shall time, the responding Party fails to notify any be confidential. 26. If immediate compliance is not possible, no later measure taken to comply with the final panel LIST OF ARBITRATORS than [20] days after the receipt of the final panel report; or FINAL PANEL REPORT report by the Parties, the responding Party shall notify 16. The Regulatory Committee shall, at its first meeting the requesting Party [and the Regulatory Committee] (c) the arbitration panel on compliance referred after the entry into force of this Agreement, establish 21. Unless the Parties agree otherwise, the of the period of time it will require for compliance. to in Article 8.36 establishes that a measure a list of at least [15] individuals, chosen on the basis arbitration panel shall issue a report in accordance taken to comply is inconsistent with that Party’s of relevant experience in financial services law and with this Article 8.21 and Articles 8.22 and 8.23. 27. In the event of disagreement between the Parties obligations under the provisions referred to regulation, objectivity, reliability and sound judgment, The final panel report shall set out the findings of on the reasonable period of time in which to comply with in Article 8.2, the requesting Party shall be who are willing and able to serve as arbitrators. The list fact, the applicability of the relevant provisions of the final panel report, the requesting Party shall, within entitled to take measures to suspend [any of shall be composed of three sub-lists: one sub-list for each this Agreement and the basic rationale behind any [20] days of the receipt of the notification made under the requesting Party’s obligations under this Party and one sub-list of individuals who are not nationals findings and conclusions that it makes. The ruling of Article 8.26 by the responding Party, request in writing Agreement [including the agreed legal effect of either Party to act as chairpersons. Each sub-list the arbitration panel in the final panel report shall be the arbitration panel to determine the length of the of any of the agreed equivalence recognitions]] shall include at least [five] individuals. The Regulatory binding on the Parties. reasonable period of time. Such request shall be notified / [benefits in the financial services sector Committee may review the list at any time and shall simultaneously to the other Party [and to the Regulatory that have an effect corresponding to the ensure that the list conforms with this Article 8.16. 22. The arbitration panel shall issue to the Parties Committee]. The arbitration panel shall issue its ruling to measure complained of [including the agreed [and to the Regulatory Committee] a final report the Parties [and to the Regulatory Committee] within [30] legal effect of any of the agreed equivalence 17. The arbitrators must have specialised knowledge within [30] days of the interim report. days from the date of the request. recognitions]]84. The [level] / [proportionality] of international financial services law and regulation. of the suspension shall be assessed from the The arbitrators acting as chairpersons must also have 23. Each Party shall make publicly available the final 28. The reasonable period of time may be extended date of notification of the final panel report to experience as counsel or panellist in dispute settlement panel report, subject to any [agreement reached by mutual agreement of the Parties. the Parties. proceedings on subject matters within the scope of this between the Parties as to confidential sections of the Agreement. The arbitrators shall be independent, serve final panel report which shall not be made publicly 29. At any time after the midpoint in the reasonable 32. Before suspending obligations, the requesting in their individual capacities and not take instructions available] / [procedures regarding the confidentiality period of time and at the request of the requesting Party shall notify the responding Party [and the from any organisation or government, or be affiliated of panel reports as agreed between the Parties for the Party, the responding Party shall make itself available Regulatory Committee] of its intention to do so, with the government of any of the Parties[, and shall purposes of this Article]. to discuss the steps it is taking to comply with the including a description of the level of obligations it comply with any code of conduct prescribed for the final panel report. intends to suspend. purposes of this Article by the Regulatory Committee]. URGENT PROCEEDINGS 30. The responding Party shall notify the other Party 33. [Except as otherwise provided in this Agreement, INTERIM PANEL REPORT 24. In cases of urgency, including those involving [and the Regulatory Committee] before the end of the suspension of obligations (including the legal events of substantial systemic risk to the financial the reasonable period of time of measures that it has effect of an agreed equivalence recognition) may 18. The arbitration panel shall present to the services sectors of either of the Parties, the arbitration taken to comply with the final panel report. concern any provision referred to in Article 8.2 Parties an interim report within [150] days of the panel and the Parties shall make every effort to and shall be limited at a level proportionate to the establishment of the arbitration panel. The report accelerate the proceedings to the greatest extent nullification or breach of this Agreement caused by shall contain: possible. The arbitration panel shall aim at issuing the violation.]85 an interim report to the Parties within [75] days of (a) findings of fact; and the establishment of the arbitration panel, and a final

report within [15] days of the interim report. Upon 84 NOTE: Remedies in the event of non-compliance by a responding Party could, potentially, be ‘all-or-nothing’ or made more specific to the measure (b) determinations as to whether the responding request of a Party, the arbitration panel shall make a complained of by implementing appropriate proportionality limits to suspensive actions the requesting Party shall be entitled to adopt. 85 NOTE: Remedies in the event of non-compliance by a responding Party could, potentially, be ‘all-or-nothing’ or made more specific to the measure Party has conformed with its obligations under preliminary ruling within [10] days of the request on complained of by implementing appropriate proportionality limits to suspensive actions the requesting Party is entitled to adopt. If the requesting Party is obliged to suspend obligations proportionately, the following provisions set out a review process for assessing the proportionality of suspension action that is DRAFT EU-UK BILATERAL AGREEMENT Appendix C DRAFT EU-UK BILATERAL this Agreement. whether it deems the case to be urgent. taken.

134 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 135 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

34. The requesting Party may implement the to bring it into conformity with those provisions, as RULINGS OF THE ARBITRATION PANEL 46. The Parties may reach a mutually agreed suspension [10] working days after the date of established under Articles 8.41 and 8.42, or until the solution to a dispute under this Article 8 at any time. receipt of the notification referred to in Article Parties have settled the dispute. 45. The rulings of the arbitration panel cannot add to They shall notify the [Regulatory Committee] and 8.32 by the responding Party, unless a Party has or diminish the rights and obligations provided for in the arbitration panel of any such solution. Upon requested arbitration under Articles 8.36 and 8.37. 40. At any time, the requesting Party may request the this Agreement. notification of the mutually agreed solution, the responding Party to provide an offer for temporary arbitration panel shall terminate its work and the 35. A disagreement between the Parties concerning compensation and the responding Party shall present MUTUALLY AGREED SOLUTIONS proceedings shall be terminated.] the existence of any measure taken to comply or its such offer. consistency with the provisions referred to in Article 8.2 (“disagreement on compliance”), or on the REVIEW OF MEASURES TAKEN TO COMPLY equivalence between the level of suspension and the AFTER THE SUSPENSION OF OBLIGATIONS nullification or impairment caused by the violation 9. PRIVATE LAW REMEDIES86 (“disagreement on suspension”), shall be referred to 41. When, after the suspension of obligations by the the arbitration panel. requesting Party, the responding Party takes measures to comply with the final panel report, the responding 01. Without prejudice to the other rights and (a) London, if the measures challenged are 36. A Party may reconvene the arbitration panel by Party shall notify the other Party and the Regulatory obligations of the Parties under Article 8, a measures of the United Kingdom; and providing a written request to the arbitration panel, Committee and request an end to the suspension of relevant private party of one Party may submit to the other Party [and the Regulatory Committee.] In obligations applied by the requesting Party. the Panel constituted under this Article 9 a claim (b) Brussels, if the measures challenged are case of a disagreement on compliance, the arbitration that the other Party has breached its obligations measures of the European Union. panel shall be reconvened by the requesting Party. In 42. If the Parties do not reach an agreement on under this Agreement by acting inconsistently case of a disagreement on suspension, the arbitration the compatibility of the notified measure with the with [the recognition principles or Articles 3, 7 06. The disputing parties may hold the consultations panel shall be reconvened by the responding Party. provisions referred to in Article 8.2 within [60] days of or 8] where the relevant private party claims to through videoconference or other means where In case of disagreements on both compliance and the date of receipt of the notification, the requesting have suffered loss or damage as a result of the appropriate. on suspension, the arbitration panel shall rule on the Party shall request in writing the arbitration panel alleged breach. disagreement on compliance before ruling on the to rule on the matter. Such request shall be notified 07. The relevant private party shall submit to the disagreement on suspension. simultaneously to the other Party and to the 02. Claims under Article 9.1 may be submitted only other Party a request for consultations setting out: Regulatory Committee. The final panel report shall to the extent that the action or inaction complained The arbitration panel shall notify its ruling to the be notified to the Parties and to the Regulatory 37. of relates to the existing business operations of the (a) the name and address of the relevant Parties and to the Regulatory Committee accordingly: Committee within [90] days of the date of submission relevant private party. private party; of the request. If the arbitration panel rules that any within [90] days of the request to reconvene measure taken to comply is in conformity with the (a) 03. The Panel shall not decide claims that fall outside (b) if there is more than one relevant private the arbitration panel, in case of a disagreement provisions referred to in Article 8.2, the suspension of the scope of Articles 9.1 and 9.2. party, the name and address of each relevant on compliance; obligations shall be terminated. private party; CONSULTATIONS within [30] days of the request to reconvene (b) RULES OF PROCEDURE (c) the provisions of this Agreement alleged to the arbitration panel, in case of a disagreement 04. A dispute should as far as possible be settled have been breached; on suspension; 43. The dispute settlement procedure under this amicably. Such a settlement may be agreed at any Article 8 shall be governed by the rules of procedure time, including after the claim has been submitted (d) the legal and the factual basis for the claim, (c) within [120] days of the first request to for arbitration [prescribed by the [Regulatory pursuant to Article 9.22. Unless the disputing parties including the measures at issue; and reconvene the arbitration panel, in case of a Committee] for the purposes of this Article] unless agree to a longer period, consultations shall be held disagreement on both compliance and suspension. the Parties agree otherwise. within [60] days of the submission of the request for (e) the relief sought and the estimated amount consultations pursuant to Article 9.7. of damages claimed. 38. The requesting Party shall not suspend GENERAL RULE OF INTERPRETATION obligations until the arbitration panel reconvened 05. Unless the disputing parties agree otherwise, the The request for consultations shall contain evidence under Articles 8.36 and 8.37 has delivered its 44. The arbitration panel shall interpret the provisions place of consultation shall be: establishing that, if applicable, the relevant private ruling. Any suspension shall be consistent with the of this Agreement in accordance with customary rules party owns or controls any undertakings on whose arbitration panel’s ruling. of interpretation of public international law, including behalf the request is submitted. those set out in the Vienna Convention on the Law 39. The suspension of obligations shall be temporary of Treaties. The arbitration panel shall also take into

and shall be applied only until the measure found account relevant interpretations in reports of Panels 86 NOTE: The extent to which private law remedies are available under this agreement should be considered by the parties. This may prove controversial however. The following provisions set out a private law remedies procedure, available to private parties which are affected by breach of the recognition to be inconsistent with the provisions referred to in and the appellate body adopted by the WTO Dispute principles or the mediation and dispute resolution provisions e.g. by unilateral suspension of an agreed equivalence recognition in breach of the Agreement. Private law remedies are included for investor-state disputes in CETA, which has been used in part as a basis for these provisions. However, in contrast to CETA, DRAFT EU-UK BILATERAL AGREEMENT Appendix C DRAFT EU-UK BILATERAL Article 8.2 has been withdrawn or amended so as Settlement Body. this provision sets forth a classical arbitration system, rather than the standing tribunal system adopted under CETA.

136 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 137 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

08. The requirements of the request for this Article 9 and is governed by the rules agreed to (f) waives its right to initiate any claim or arbitration shall be conducted under the UNCITRAL consultations set out in Article 9.7 shall be met by the disputing parties. proceeding before a tribunal or court under Arbitration Rules. with sufficient specificity to allow the respondent domestic or international law with respect to a to effectively engage in consultations and to 15. The mediator is appointed by agreement of the measure alleged to constitute a breach referred 24. The rules applicable under Article 9.23 are those prepare its defence. disputing parties. The disputing parties may also to in its claim. that are in effect on the date that the claim or claims request that the [Regulatory Committee] appoint the are submitted to the Tribunal under this Article 9, 09. A request for consultations must be submitted mediator. 19. If the claim submitted pursuant to Article 9.22 is subject to the specific rules set out in this Article 9. within: for loss or damage to an undertaking that the relevant 16. The disputing parties shall endeavour to reach private party owns or controls directly or indirectly, 25. The place of arbitration shall be determined in (a) [one] year after the date on which the a resolution of the dispute within [60] days from the the requirements in Articles 9.18(e) and 9.18(f) apply accordance with the same principles as the place of relevant private party first acquired or should appointment of the mediator. both to the relevant private party and the relevant consultation under Article 9.5. have first acquired, knowledge of the alleged undertaking. breach and knowledge that the relevant private 17. If the disputing parties agree to have recourse 26. A claim is submitted for dispute settlement under this party has incurred loss or damage thereby; or to mediation, Articles 9.9 and 9.12 shall not apply 20. Upon request of the respondent, the Tribunal Article 9 when the notice under Article 3 of the UNCITRAL from the date on which the disputing parties agreed shall decline jurisdiction if the relevant private party Arbitration Rules is received by the respondent. (b) [one] year after a relevant private party to have recourse to mediation to the date on or, as applicable, the relevant undertaking owned or ceases to pursue claims or proceedings before which either disputing party decides to terminate controlled directly or indirectly by a relevant private 27. Each Party shall notify the other Party of the place of a tribunal or court under the law of a Party, or the mediation. A decision by a disputing party to party fails to fulfil any of the requirements of Articles delivery of notices and other documents by the relevant when such proceedings have otherwise ended terminate the mediation shall be transmitted by way 9.18 and 9.19. private parties pursuant to this Article 9. Each Party shall and, in any event, no later than [10] years after of a letter to the mediator and the other disputing ensure this information is made publicly available. the date on which the relevant private party party. 21. The waiver provided pursuant to Articles 9.18(f) first acquired or should have first acquired or 9.19 as applicable shall cease to apply: PROCEEDINGS UNDER ANOTHER knowledge of the alleged breach and knowledge PROCEDURAL AND OTHER REQUIREMENTS INTERNATIONAL AGREEMENT that the relevant private party has incurred loss FOR THE SUBMISSION OF A CLAIM TO THE (a) if the Tribunal rejects the claim on the or damage thereby. TRIBUNAL basis of a failure to meet the requirements of 28. Where a claim is brought pursuant to this Article Articles 9.18 or 9.19 on any other procedural or 9 and another international agreement and: 10. A request for consultations concerning an alleged 18. A relevant private party may only submit a claim jurisdictional grounds; breach by the European Union shall be sent to the pursuant to Article 9.22 if the relevant private party: (a) there is a potential for overlapping European Union. (b) if the Tribunal dismisses the claim pursuant compensation; or (a) delivers to the respondent, with the to Article 9.46 or Article 9.48; or 11. A request for consultations concerning an alleged submission of a claim, its consent to the (b) the other international claim could have breach by the United Kingdom shall be sent to the UK settlement of the dispute by the Tribunal in (c) if the relevant private party withdraws a significant impact on the resolution of the recognition body. accordance with the procedures set out in this its claim, in conformity with the applicable claim brought pursuant to this Article 9, the Article 9; rules under Article 9.23, within 12 months Tribunal shall, as soon as possible after hearing 12. In the event that the relevant private party of the constitution of the division of the the disputing parties, stay its proceedings or has not submitted a claim pursuant to Article 9.22 (b) allows at least [180] days to elapse from Tribunal. otherwise ensure that proceedings brought within [one] year of submitting the request for the submission of the request for consultations pursuant to another international agreement are consultations, the relevant private party is deemed and, if applicable, at least [90] days to elapse SUBMISSION OF A CLAIM TO THE TRIBUNAL taken into account in its decision, order or award. to have withdrawn its request for consultations and, from the submission of the notice requesting a if applicable, its notice requesting a determination of determination of the respondent; 22. If a dispute has not been resolved through CONSENT TO THE SETTLEMENT OF THE the respondent, and shall not submit a claim under consultations, a claim may be submitted under this DISPUTE BY THE TRIBUNAL this Article 9 with respect to the same measures. (c) has fulfilled the requirements related to the Article 9 by: This period may be extended by agreement of the request for consultations; 29. The respondent consents to the settlement of disputing parties. (a) a relevant private party of a Party on its own the dispute by the Tribunal in accordance with the (d) does not identify a measure in its claim that behalf; or procedures set out in this Article 9. MEDIATION was not identified in its request for consultations; (b) a relevant private party of a Party, on behalf 30. The consent under Article 9.29 and the 13. The disputing parties may at any time agree to (e) withdraws or discontinues any existing of an undertaking which it owns or controls submission of a claim to the Tribunal under this Article have recourse to mediation. proceeding before a tribunal or court under directly or indirectly. 9 shall satisfy the requirements of Article II of the New domestic or international law with respect to a York Convention for an agreement in writing. 14. Recourse to mediation is without prejudice to the measure alleged to constitute a breach referred 23. Subject to the provisions of this Article 9 or

DRAFT EU-UK BILATERAL AGREEMENT Appendix C DRAFT EU-UK BILATERAL legal position or rights of either disputing party under to in its claim; and as otherwise agreed by the disputing parties, the

138 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 139 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

THIRD PARTY FUNDING ETHICS APPLICABLE LAW AND INTERPRETATION Tribunal shall assume the alleged facts to be true.

31. Where there is third party funding, the disputing 35. The Members of the Tribunal shall be 39. When rendering its decision, the Tribunal 47. Articles 9.42, 9.45 and 9.46 shall be without party benefiting from it shall disclose to the other independent. They shall not be affiliated with any established under this Article 9 shall apply this prejudice to the Tribunal’s authority to address other disputing party and to the Tribunal the name and government. They shall not take instructions from any Agreement as interpreted in accordance with the objections as a preliminary question or to the right address of the third party funder. organisation, or government with regard to matters Vienna Convention on the Law of Treaties, and other of the respondent to object, in the course of the related to the dispute. They shall not participate rules and principles of international law applicable proceeding, that a claim lacks legal merit. 32. The disclosure shall be made at the time of the in the consideration of any disputes that would between the Parties. submission of a claim, or, if the financing agreement create a direct or indirect conflict of interest. They CLAIMS UNFOUNDED AS A MATTER OF LAW is concluded or the donation or grant is made after shall comply with the International Bar Association 40. The Tribunal shall not have jurisdiction to the submission of a claim, without delay as soon Guidelines on Conflicts of Interest in International determine the legality of a measure, alleged to 48. Without prejudice to the Tribunal’s authority to as the agreement is concluded or the donation or Arbitration. In addition, upon appointment, they shall constitute a breach of this Agreement, under the address other objections as a preliminary question or to grant is made. refrain from acting as counsel or as party-appointed domestic law of a Party. For greater certainty, in a respondent’s right to raise any such objections at an expert or witness in any pending or new dispute determining the consistency of a measure with this appropriate time, the Tribunal shall address and decide as a CONSTITUTION OF THE TRIBUNAL under this or any other international agreement. Agreement, the Tribunal may consider, as appropriate, preliminary question any objection by the respondent that, the domestic law of a Party as a matter of fact. In as a matter of law, a claim, or any part thereof, submitted 33. The dispute shall be decided by a Sole Arbitrator, 36. If a disputing party considers that a Member of doing so, the Tribunal shall follow the prevailing pursuant to Article 9.22 is not a claim for which an award unless either of the disputing parties requests dispute the Tribunal has a conflict of interest, it may invite the interpretation given to the domestic law by the courts in favour of the claimant may be made under this Article 9, resolution by a three-person Tribunal. President of the International Court of Justice to issue or authorities of that Party and any meaning given even if the facts alleged were assumed to be true. a decision on the challenge to the appointment of to domestic law by the Tribunal shall not be binding 34. The Sole Arbitrator, if any, shall be appointed such Member. Any notice of challenge shall be sent upon the courts or the authorities of that Party. 49. An objection under Article 9.48 shall be by agreement of the disputing parties. In the case to the President of the International Court of Justice submitted to the Tribunal no later than the date of a three-person Tribunal, each disputing party within [15] days of the date on which the composition 41. An interpretation of this Agreement adopted by the Tribunal fixes for the respondent to submit its shall nominate one arbitrator and the so nominated of the division of the Tribunal has been communicated the Regulatory Committee shall be binding on the counter-memorial. two arbitrators shall then jointly nominate the third to the disputing party, or within [15] days of the date Tribunal established under this Article 9. The Regulatory and presiding arbitrator, who shall not be a national on which the relevant facts came to its knowledge, Committee may decide that an interpretation shall have 50. If an objection has been submitted pursuant to of either Party to this Agreement. In the event if they could not have reasonably been known at the binding effect from a specific date. Article 9.42 the Tribunal may, taking into account the the disputing parties are unable to agree within time of composition of the division. The notice of circumstances of that objection, decline to address an [45 days] of submission of a claim in accordance challenge shall state the grounds for the challenge. CLAIMS MANIFESTLY WITHOUT LEGAL MERIT objection submitted pursuant to Article 9.48. with Section 9.28 on the Sole Arbitrator, or in the case of a three-person Tribunal the party- 37. If, within [15] days from the date of the notice of 42. The respondent may, no later than [30] days after 51. On receipt of an objection under Article 9.48, nominated arbitrators fail to jointly nominate the challenge, the challenged Member of the Tribunal has the constitution of the division of the Tribunal, and in and, if appropriate, after rendering a decision presiding arbitrator or if either disputing party fails elected not to resign from the division, the President of any event before its first session, file an objection that pursuant to Article 9.50, the Tribunal shall suspend to nominate its party-nominated arbitrator, each the International Court of Justice may, after receiving a claim is manifestly without legal merit. any proceedings on the merits, establish a schedule disputing party may request the Chairperson of the submissions from the disputing parties and after for considering the objection consistent with any Regulatory Committee, or the chair’s delegate, [to providing the Member of the Tribunal an opportunity 43. An objection shall not be submitted under Article schedule it has established for considering any other make the relevant appointment] / [to draw by lot to submit any observations, issue a decision on the 9.42 if the respondent has filed an objection pursuant preliminary question, and issue a decision or award on the arbitrators from the list established under Article challenge. The President of the International Court of to Article 9.48. the objection stating the grounds therefor. 8.16. In the case of the Sole Arbitrator and the Justice shall endeavour to issue the decision and to chairperson of a three-person Tribunal, the arbitrator notify the disputing parties and the other Members [of 44. The respondent shall specify as precisely as INTERIM MEASURES OF PROTECTION shall be drawn from the sub-list of chairpersons. the division][of the Tribunal] within [45] days of receipt possible the basis for the objection. If the disputing parties were unable to reach of the notice of challenge. A vacancy resulting from 52. The Tribunal may order an interim measure of agreement on the two (non-presiding) arbitrators the disqualification or resignation of a Member of the 45. On receipt of an objection pursuant to Article protection to preserve the rights of a disputing party of a three-person Tribunal, one arbitrator shall be Tribunal shall be filled promptly. 9.42, the Tribunal shall suspend the proceedings on or to ensure that the Tribunal’s jurisdiction is made drawn from the sub-list of the responding Party and the merits and establish a schedule for considering fully effective, including an order to preserve evidence one arbitrator shall be drawn from the sub-list of 38. Upon a reasoned recommendation from the such an objection consistent with its schedule for in the possession or control of a disputing party or to the other Party to this Agreement. In the event the President of the Tribunal, or on their joint initiative, considering any other preliminary question. protect the Tribunal’s jurisdiction. The Tribunal shall disputing parties have agreed on the chairperson the Parties, by decision of the Regulatory Committee, not order attachment or enjoin the application of the as well as on one of the other two arbitrators, the may remove a Member from the Tribunal where his or 46. The Tribunal, after giving the disputing parties an measure alleged to constitute a breach referred to in remaining arbitrator shall be drawn from the sub-list her behaviour is inconsistent with the obligations set opportunity to present their observations, shall at its Article 9.22. For the purposes of this Article, an order of chairpersons. Articles 8.12 to 8.14 apply, mutatis out in Article 9.35 and incompatible with his or her first session or promptly thereafter, issue a decision or includes a recommendation.

DRAFT EU-UK BILATERAL AGREEMENT Appendix C DRAFT EU-UK BILATERAL mutandis, to this section. continued membership of the Tribunal. award stating the grounds therefor. In doing so, the

140 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 141 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

DISCONTINUANCE disclosure information that has been designated as (c) on request and at the cost of the non- 69. The Tribunal shall not award punitive damages. confidential or protected information. disputing Party, all or part of the evidence that 53. If, following the submission of a claim under this has been tendered to the Tribunal, unless the 70. The Tribunal shall order that the costs of the Article 9, the relevant private party fails to take any INFORMATION SHARING requested evidence is publicly available. proceedings be borne by the unsuccessful disputing steps in the proceeding during [180] consecutive days party. In exceptional circumstances, the Tribunal may or such period as the disputing parties may agree, the 60. A disputing party may disclose to other persons 63. The Tribunal shall accept or, after consultation apportion costs between the disputing parties if it relevant private party is deemed to have withdrawn its in connection with the proceedings, including with the disputing parties, may invite, oral or written determines that apportionment is appropriate in the claim and to have discontinued the proceeding. The witnesses and experts, such unredacted documents submissions from the non-disputing Party regarding circumstances of the claim. Other reasonable costs, Tribunal shall, at the request of the respondent, and as it considers necessary in the course of proceedings the interpretation of this Agreement. The non- including costs of legal representation and assistance, after notice to the disputing parties, in an order take under this Article 9. However, the disputing disputing Party may attend a hearing held under this shall be borne by the unsuccessful disputing party, note of the discontinuance. After the order has been party shall ensure that those persons protect the Article 9. unless the Tribunal determines that such apportionment rendered the authority of the Tribunal shall lapse. confidential or protected information contained in is unreasonable in the circumstances of the claim. If only those documents. 64. The Tribunal shall not draw any inference from parts of the claims have been successful the costs shall TRANSPARENCY OF PROCEEDINGS the absence of a submission pursuant to Article 9.63. be adjusted, proportionately, to the number or extent of 61. This Agreement does not prevent a respondent the successful parts of the claims. 54. The UNCITRAL Transparency Rules, as modified from disclosing to officials of, as applicable, the 65. The Tribunal shall ensure that the disputing by this Agreement, shall apply in connection with European Union, Member States of the European parties are given a reasonable opportunity to present 71. The Regulatory Committee shall consider proceedings under this Article 9. Union and sub-national governments, such their observations on a submission by the non- supplemental rules aimed at reducing the financial unredacted documents as it considers necessary disputing Party to this Agreement. burden on claimants who are natural persons or small and 55. The request for consultations, the agreement to in the course of proceedings under this Article 9. medium-sized enterprises. Such supplemental rules may, mediate, the notice of intent to challenge a Member of However, the respondent shall ensure that those FINAL AWARD in particular, take into account the financial resources of the Tribunal, the decision on challenge to a Member of the officials protect the confidential or protected such claimants and the amount of compensation sought. Tribunal and the request for consolidation shall be included information contained in those documents. 66. If the Tribunal makes a final award against the in the list of documents to be made available to the public respondent, the Tribunal may only award [monetary 72. The Tribunal[, the Regulatory Committee] and under Article 3(1) of the UNCITRAL Transparency Rules. NON-DISPUTING PARTY damages and any applicable interest]; the disputing parties shall make every effort to ensure the dispute settlement process is carried out in a 56. Exhibits shall be included in the list of documents 62. The respondent shall, within [30] days after 67. Subject to Articles 9.66 and 9.70, if a claim is timely manner. The Tribunal shall issue its final award to be made available to the public under Article 3(2) receipt or promptly after any dispute concerning made under 9.22(b): within [12] months of the date the claim is submitted of the UNCITRAL Transparency Rules. confidential or protected information has been pursuant to Article 9.22. If the Tribunal requires resolved, deliver to the non-disputing Party: (a) an award of monetary damages and any additional time to issue its final award, it shall provide 57. Notwithstanding Article 2 of the UNCITRAL applicable interest shall provide that the sum be the disputing parties the reasons for the delay. Transparency Rules, prior to the constitution of the (a) a request for consultations, a notice paid to the undertaking which a relevant private Tribunal, the United Kingdom or the European Union requesting a determination of the respondent, a party owns or controls directly or indirectly; INDEMNIFICATION OR OTHER COMPENSATION as the case may be shall make publicly available in notice of determination of the respondent, a claim a timely manner relevant documents pursuant to submitted pursuant to Article 9.22, a request for (b) an award of costs in favour of the relevant 73. A respondent shall not assert, and the Article 9.55, subject to the redaction of confidential or consolidation, and any other documents that are private party shall provide that it is to be made Tribunal shall not accept a defence, counterclaim, protected information. Such documents may be made appended to such documents; to the relevant private party; and right of setoff, or similar assertion, that a publicly available by communication to the repository. relevant private party or, as applicable, a locally (b) on request: (c) the award [may] / [shall] provide that it is established enterprise, has received or will receive 58. Hearings shall be open to the public. The Tribunal made without prejudice to a right that a person, indemnification or other compensation pursuant shall determine, in consultation with the disputing (i) pleadings, memorials, briefs, requests other than a person which has provided a waiver to an insurance or guarantee contract in respect of parties, the appropriate logistical arrangements and other submissions made to the Tribunal pursuant to Article 9.18, may have in monetary all or part of the compensation sought in a dispute to facilitate public access to such hearings. If the by a disputing party; damages or property awarded under a Party’s law. initiated pursuant to this Article 9. Tribunal determines that there is a need to protect confidential or protected information, it shall make the (ii) written submissions made to the 68. Monetary damages shall not be greater than ENFORCEMENT OF AWARDS appropriate arrangements to hold in private that part Tribunal pursuant to Article 4 of the the loss suffered by the relevant private party or, as of the hearing requiring such protection. UNCITRAL Transparency Rules; applicable, the undertaking which a relevant private 74. An award issued pursuant to this Article 9 shall party owns or controls directly or indirectly, reduced by be binding between the disputing parties and in 59. Nothing in this Article 9 requires a respondent to (iii) minutes or transcripts of hearings of the any prior damages or compensation already provided. respect of that particular case. withhold from the public information required to be Tribunal, if available; and For the calculation of monetary damages, the Tribunal disclosed by its laws. The respondent should apply shall also reduce the damages to take into account any 75. Subject to Article 9.76, a disputing party shall

DRAFT EU-UK BILATERAL AGREEMENT Appendix C DRAFT EU-UK BILATERAL those laws in a manner sensitive to protecting from (iv) orders, awards and decisions of the repeal or modification of the measure. recognise and comply with an award without delay. Tribunal; and

142 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 143 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

76. A disputing party shall not seek enforcement of a consistency of awards, and upon request of either may submit a written request initiating the consultation or repealed and replaced and the proposed changes final award until: disputing party, the Tribunal may consolidate the process under Article 6 to implement necessary changes to any affected parts of Schedule [•] do not materially proceedings with any other proceedings initiated to any affected parts of Schedule [•] to reflect the affect the original intended legal effect of an agreed (a) [90] days have elapsed from the date the pursuant to Article 9.22 in relation to a claim or amended or repealed and replaced underlying national equivalence recognition in the relevant jurisdiction. award was rendered and no disputing party has claims under this Agreement. The Tribunal shall not legislation. Such amendments will be promptly notified commenced a proceeding to revise, set aside or consolidate such proceedings, unless (i) it determines to the GATS Council on Trade in Services in accordance AMENDING, SUPPLEMENTING AND REMOVING annul the award; or that there are issues of fact or law common to the two with Article VII:4(c) of the GATS. EQUIVALENCE RECOGNITIONS proceedings so that a consolidated proceeding would (b) enforcement of the award has been stayed be more efficient than separate proceedings, and 02. The Parties shall make every attempt to arrive at 04. Where a Party wishes to initiate discussions and a court has dismissed or allowed an (ii) no party would be prejudiced as a result of such a mutually satisfactory resolution of the consultation relating to an equivalence change, it may submit a application to revise, set aside or annul the consolidation through undue delay or otherwise. In request through the consultation process under Article 6. written request initiating the consultation process award and there is no further appeal. the case of conflicting rulings on this question by the under Article 6 for the purposes of negotiating an Tribunals constituted in the proceedings subject to a 03. The change process described in Articles 10.1 to this equivalence change with the responding Party. 77. Execution of the award shall be governed by the request for consolidation, the ruling of the Tribunal in Article 10.3 is intended to be used where the relevant laws concerning the execution of judgment or awards the first-filed of the proceedings subject to a request underlying national legislation of either Party is amended 05. [...]87 in force where the execution is sought. for consolidation shall control.

78. A final award issued pursuant to this Article 9 is an 83. In the case of a consolidated proceeding, the arbitral award that is deemed to relate to claims arising arbitrator(s) in the consolidated proceeding shall out of a commercial relationship or transaction for the be [the arbitrator(s) appointed for the first-filed of 11. SUSPENSIONS purposes of Article I of the New York Convention. the consolidated proceedings] [appointed by the Regulatory Committee on the request of any of the ROLE OF THE PARTIES disputing parties]. 01. The Parties may not suspend or alter the agreed (d) in accordance with a mutually agreed legal effect of any agreed equivalence recognition solution that has been reached between the 79. A Party shall not bring an international claim, 84. A relevant private party may withdraw a claim as detailed and contained in Schedule [•] unless the Parties in accordance with the mediation process in respect of a claim submitted pursuant to Article under this Article 9 that is subject to consolidation suspension or alteration of the national legal effect of specified in Article 7; or 9.22, unless the other Party has failed to abide by and and such claim shall not be resubmitted pursuant any agreed equivalence recognition is: comply with the award rendered in that dispute. to Article 9.22. If it does so no later than [15] days (e) in accordance with the dispute resolution after receipt of the notice of consolidation, its earlier (a) pursuant to the mutual agreement of the Parties; process specified in Article 8. 80. Article 9.79 shall not exclude the possibility of submission of the claim shall not prevent the relevant dispute settlement under Article 8 in respect of a private party’s recourse to dispute settlement other (b) in accordance with the change mechanisms 02. For legal certainty and stability, the Parties shall measure of general application even if that measure is than under this Article 9. specified in Article 10; ensure that any national measures taken to suspend or alleged to have breached this Agreement in respect of alter the agreed legal effect of any agreed equivalence which a claim has been submitted pursuant to Article 85. At the request of a relevant private party, the (c) in accordance with a mutually agreed recognition as detailed and contained in Schedule 1 9.22 and is without prejudice to Article 9.62. Tribunal may take such measures as it sees fit in order solution that has been reached between the shall only take effect at the earliest [one year] after to preserve the confidential or protected information Parties in accordance with the consultation publication of the relevant national legal instrument 81. Article 9.79 does not preclude informal of that relevant private party in relation to other process specified in Article 6; [(subject to mutual agreement of the Parties or if exchanges for the sole purpose of facilitating a relevant private parties. Those measures may include required to comply with any panel ruling or report that settlement of the dispute. the submission of redacted versions of documents is issued to the Parties pursuant to Article 8)]. containing confidential or protected information to CONSOLIDATION the other relevant private parties or arrangements to hold parts of the hearing in private. 82. In the interest of facilitating the comprehensive 12. AMENDMENTS TO THIS AGREEMENT resolution of related disputes and ensuring the

01. Amendments to this Agreement or any of its Schedules may only be made with the mutual written consent 10. CHANGE MECHANISMS of the Parties.

AMENDED AND REPEALED LEGISLATION to the agreed legal effect of an agreed equivalence

recognition as detailed in Schedule [•] is, or is proposed 87 NOTE: If a stronger commitment from either Party to consider supplementing agreed equivalence recognitions is desired, additional provisions may be included here. The extent to which this is possible of course depends on the nature of the UK-EU relationship and bilateral negotiations relating to the DRAFT EU-UK BILATERAL AGREEMENT Appendix C DRAFT EU-UK BILATERAL 01. Where the underlying national legislation relating to be, amended or repealed and replaced, either Party framework for establishing new agreed equivalence recognitions.

144 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 145 EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition Barnabas Reynolds

Agreed equivalence recognition relating to: [•]

Relevant United Kingdom Legislation Relevant United Kingdom Legislation [•] [•]

Description of legal effect in the United Kingdom Description of legal effect in the United Kingdom [•] [•]

Conditions applicable to United Kingdom legal effect Conditions applicable to United Kingdom legal effect Appendix C DRAFT EU-UK BILATERAL AGREEMENT of agreed equivalence recognition of agreed equivalence recognition [•] [•]

Description of category of Union undertakings Description of category of Union undertakings entitled to the agreed equivalence recognition entitled to the agreed equivalence recognition AGREED [•] [•]

EQUIVALENCE Agreed equivalence recognition relating to: [•]

Relevant Union Legislation Relevant United Kingdom Legislation RECOGNITIONS Directive [•] [•] Description of legal effect in the Union Description of legal effect in the United Kingdom Schedule I [•] [•]

Conditions applicable to Union legal effect of agreed Conditions applicable to United Kingdom legal effect equivalence recognition of agreed equivalence recognition [•] [•]

Description of category of United Kingdom Description of category of Union undertakings undertakings entitled to the agreed equivalence entitled to the agreed equivalence recognition recognition [•] [•]

146 New Direction - The Foundation for European Reform www.europeanreform.org @europeanreform 147 NOTES NOTES EU-UK Financial Services after Brexit: Enhanced Equivalence - a Win-Win Proposition

152 New Direction - The Foundation for European Reform