Has the EU and UK relationship 'turned a page'? EU and UK agree memorandum of understanding establishing framework for financial services regulatory cooperation

Originally expected by March 2021, the UK and EU have, more than two years later, finally signed a memorandum of understanding (the "MoU"), which sets up a framework for increased cooperation on financial services regulation. The MoU, first published in draft form on 19 May 2023 and signed on 27 June 2023, does not agree anything concrete or – despite referencing potential equivalence decisions in several places – indicate a direct path to equivalence in any area. It does, however, represent some progress from the Joint Declaration on the subject issued on 24 December 2020 while retaining each side's sovereignty over decision-making in their respective territories.

While the MoU does not make any substantive changes to the status quo, it demonstrates a continued normalisation of regulatory relationships in financial services post-Brexit and early reactions from industry and trade bodies have been positive.

Having a framework for cooperation and communication could not do any harm. But we would only ever be able to judge the success of the framework by its outcomes. Commissioner McGuinness had said on various occasions since the UK left the EU that there was 'no rush' to grant any more equivalence decisions to the UK. In the press release accompanying the MoU, she refers to the UK and EU having 'turned a page' in their relationship. The proof is in the pudding. Will we see more equivalence decisions coming through? Realistically, as we are already beginning to see with various areas including MiFID, divergence is inevitable, but would increased dialogue encourage future UK and EU legislation to become more aligned and compatible? A good test case for this could be the recent developments in the regulation of cryptoassets in the EU and UK.

What does the MoU seek to achieve?

The MoU establishes a Joint EU-UK Financial Regulatory Forum ("Forum") for collaboration between the UK government and the EU Commission, providing a more structured framework for discussion and potential alignment. The Forum's stated objective is to preserve financial stability, market integrity and protection of investors and consumers.

Scheduling of Forum meetings under the MoU is flexible, with a baseline intention for the more formal meetings to take place at least every six months. However, discussions will not be limited to the Forum meetings as the MoU envisages preparatory meetings, other ad hoc groups, meetings or calls on issues. Discussions will also not necessarily just be between the Commission and HM Treasury as they may, subject to approval of the other party, invite representatives from other regulatory bodies, member states and government departments as well as relevant experts to attend sessions.

The MoU indicates a possibility of joint statements after the semi-annual meetings for increased transparency and visibility, which is one of the Forum's operational objectives, which are to:

• improve transparency;
• reduce uncertainty;
• identify potential cross-border implementation issues, including relating to potential opportunities for regulatory arbitrage;
• consider working towards compatibility of each other's standards, as appropriate;
• promote domestic implementation consistent with international standards where appropriate;
• share knowledge to facilitate a common understanding of the EU and UK's regulatory frameworks; and
• exchange information and views on other issues of common interest within the scope of the MoU.

The equivalence question

The potential for eventual equivalence decisions will be of interest to many observers, and the MoU addresses this in several places without making any commitments:

• "these arrangements will provide for… transparency and appropriate dialogue in the process of adoption, suspension and withdrawal of equivalence decisions."
• "Forum activities may include… exchanges of views on the respective policies, rules and processes concerning deference regimes, such as equivalence, or other tools used to address cross-border issues… [and] dialogue on Participants' autonomous decisions to adopt, suspend or withdraw equivalence relevant to one or the other side."