From an outside perspective, the draft report of Irish EPP MEP Brian Hayes on the relationship of the EU with third countries regarding financial services and supervision might look what it is: another own initiative report. Some might have added the word “just”. I tend to disagree.
For a start, the European Parliament’s own initiative reports are never innocent and usual tend to provide political guidance to the Commission on MEPs’ thinking regarding upcoming legislation. Often it is also a strong hint to the Commission that they would like to see legislation initiated.
But the topic also goes to the core of a major headache of the financial services industry: how will the industry on both sides of the Channel interact after Brexit comes into effect. With the UK and EU red lines, there is not much room left and the third country equivalence regime is the best offer on the table. This has been repeated by the EU chief negotiator Michel Barnier as well as Commission Vice-President Valdis Dombrovskis recently. The 27 remaining EU Member States also called in the context of the negotiation mandate for the Commission to review the equivalence regime and come forward with an “improved” version.
During this week’s exchange of views in ECON on the draft report, the Brexit link was overwhelmingly clear in a sometimes-passionate debate. We even saw a British Green MEP arguing against a bespoke Brexit deal for the City before being accused by a fellow countryman of neglecting to represent her constituents. Another MEP regretted that the Brexit debate prevented the EU’s relationship with other third countries to be discussed in a technical manner.
The rapporteur also suggests in his report that mutual recognition might be a preferable tool to the equivalence regime when it comes to granting third country financial institutions access to the EU’s Single Market. Indeed it would in return also give larger access to new markets. This notion was immediately dismissed by the socialist, green and to some extent liberal speakers as working against the high level of the EU’s financial services legislation by lowering the standards to adjust to the average.
Finally the draft report suggests to give a stronger role to the European Parliament. Indeed currently third country equivalence decisions are adopted via implementing acts that cut out any say MEPs might have. The rapporteur would like to change that. He suggests the use of delegated acts instead where the EP and the Council can veto the final decision and both have thereby a negotiating power over the Commission. Among MEPs this will prove less controversial than the above topics.
Some might argue that it will politicize what is meant to be a technical issue where decisions are taken on the pure merit of the case. This is in my view correct. I am wondering nevertheless whether it is not already too late. Indeed the process around the AIFMD third country passport – similar but identical to an equivalence decision – has been put on ice by the Commission because of Brexit. Similarly the Commission’s December 2017 decision to grant equivalence to Swiss share trading venues has been limited to one year, widely acknowledged in order to gain leverage on a separate policy matter. After all, as its President continues reminding us in words and deeds, this Commission ambitions to be political.
By Antoine Kremer, ABBL & ALFI Head of European Affairs