Brexit Final Political Declaration: Nothing [new] to see here?

The Political Declaration setting out the Framework for the Future Relationship between the EU and the UK was published earlier today.

On financial services (including insurance), the final declaration essentially contains the same three points as in last week’s outline political declaration (as discussed in our blog post of 15th November), although there is some limited further clarification.

The three points on financial services are copied below with substantive additions in bold:

• The Parties are committed to preserving financial stability, market integrity, investor and consumer protection and fair competition, while respecting the Parties’ regulatory and decision-making autonomy, and their ability to take equivalence decisions in their own interest. This is without prejudice to the Parties’ ability to adopt or maintain any measure where necessary for prudential reasons. The Parties agree to engage in close cooperation on regulatory and supervisory matters in international bodies.
• Noting that both Parties will have equivalence frameworks in place that allow them to declare a third country’s regulatory and supervisory regimes equivalent for relevant purposes, the Parties should start assessing equivalence with respect to each other under these frameworks as soon as possible after the United Kingdom’s withdrawal from the Union, endeavouring to conclude these assessments before the end of June 2020. The Parties will keep their respective equivalence frameworks under review.
• The Parties agree that close and structured cooperation on regulatory and supervisory matters is in their mutual interest. This cooperation should be grounded in the economic partnership and based on the principles of regulatory autonomy, transparency and stability. It should include transparency and appropriate consultation in the process of adoption, suspension and withdrawal of equivalence decisions, information exchange and consultation on regulatory initiatives and other issues of mutual interest, at both political and technical levels.

While the revised version of the financial services text includes some further positive signals on the nature of the reciprocal commitment to “close and structured cooperation”, nothing points to any material further benefits to financial services firms in terms of the nature and scope of the future framework for cross border market access.  As discussed previously, there is no indication that a comprehensive alternative to passporting will be developed and, while “appropriate consultation” on equivalence decisions might give some added comfort, the equivalence-based access regime has well-documented shortcomings for the insurance sector.

The final declaration also includes some further clarification on the intentions for “Regulatory Aspects”. While this is high-level and not limited to financial services , some statements are potentially encouraging. There is a shared intention to “promote avoidance of unnecessary regulatory requirements”, which could be seen as positive by those in favour of deregulation.

There is also a stated intention to develop “horizontal provisions on licensing procedures” and “appropriate arrangements on those professional qualifications which are necessary to the pursuit of regulated professions, where in the parties’ mutual interest”. This could prove helpful from a cross-border access perspective if it results in the reduction of discrepancies and gold-plating at individual member state level.  However, it is difficult to know whether these statements and the related references to “market access and national treatment under host state rules for [incoming] service providers and investors” should be read as an intention to increase alignment in these areas or to maintain concessions towards individual host state autonomy.

Given the content of the final declaration, the insurance industry may wish to revisit changes to the UK regime that the PRA argued it could not address while it is constrained by Solvency II.  Although achieving equivalence status should not mean that the UK regime cannot change at all, account would need to be taken, however, of the impact of any change on the ability of the UK achieve and maintain equivalence status.