EC adopted a communication to help national authorities and other stakeholders prepare for changes that will arise at the end of the transition period. The communication sets out a sector-by-sector overview (included the financial sector) of the main areas with changes, regardless of the outcome of the ongoing EU-UK negotiations. The communication also sets out measures that national authorities and other stakeholders should take to be ready for these changes. In parallel, EC is reviewing and, where necessary, updating all 102 stakeholder notices, published at the time of the withdrawal negotiations—many of which continue to be relevant for the end of the transition period. The Annex to the communication contains a list of more than 50 updated notices, all of which are available on the dedicated webpage of EC.
As of January 01, 2021, authorizations to provide services from UK across the EU will stop applying. The provision of financial services from UK to EU will be possible subject to the relevant third-country rules of the member state concerned. Under the equivalence frameworks foreseen in certain Union legal acts, EU has the possibility to facilitate specific interactions between the Union and UK financial systems by recognizing that the relevant UK regulatory and supervisory regimes are equivalent to the corresponding Union legislation and requirements. Only a limited number of these equivalences allow third-country firms to provide their services to EU clients. Specifically for investment firms, a new, improved equivalence framework will enter into force in mid-2021. In most areas, such as insurance, commercial bank lending, and deposit-taking, equivalence does not allow third-country firms to provide services in EU but provides prudential and/or reporting relief to EU firms. As the EU equivalence frameworks are unilateral, neither the equivalence assessments nor possible decisions for granting equivalence are part of the negotiations with UK.
The Political Declaration on the future relationship states that both EU and UK will endeavor to conclude their respective equivalence assessments before the end of June 2020. EC has shared with UK the questionnaires covering 28 equivalence areas. Until the end of June, only four completed questionnaires had been returned. On this basis, EC could not conclude its equivalence assessments by the end of June and will continue the assessments based on further replies that it is receiving. EC will take decisions based on a comprehensive assessment and considering the EU interest. In a number of areas, EC has not initiated an assessment, either because equivalence decisions have already been granted or because, for instance, the EU legal framework is not yet fully in place. With regard to the latter areas, EC will not adopt an equivalence decision in the short or medium term.
In the short term, and to address the possible risks to financial stability, EC is considering the adoption of a time-limited equivalence decision for UK in the area of central clearing counterparties (CCPs) of derivatives. Such a time-limited decision would allow EU-based CCPs to further develop their capacity to clear relevant trades in the short and medium term and EU clearing members to take and implement the necessary steps, including by reducing their systemic exposure to UK market infrastructures. EC is adopting the implementing measures that will determine the degree of systemic risk of third-country CCPs and the necessary measures to strengthen the supervision of such CCPs, with the possible need for further measures to mitigate those risks. As a next step, EC will work closely with national authorities, businesses, and other stakeholders over the coming months to help them prepare for the far-reaching changes that will occur at the end of the year, irrespective of whether an agreement is reached.
Keywords: Europe, EU, UK, Banking, Insurance, Securities, Brexit, Transition Period, Equivalence Regime, Derivatives, Third-Country CCPs, EC
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