Antoine Kremer, head of European affairs at the financial industry trade groups Alfi & ABBL, explains that Third Country Equivalency may be the only way forward for the UK post-Brexit. He warns, however, that it cannot have its cake and eat it, or risk undermining the single market.
Anyone who has not been living on the moon or under a rock recently will have read a lot about Brexit in news publications and sites all over the world. Delano is no exception as, considering Luxembourg’s place in the EU and close ties with the UK, Brexit stands to have a huge impact, especially on the thousands of British expats that have called the grand duchy home for many years.
As negotiations have (albeit slowly) progressed there has been a lot of speculation and debate on what kind of relationship the UK will continue to have with the EU post-Brexit. As the Brits get closer to leaving the single market, and as such no longer have automatic passporting rights, they have proposed Third Country Equivalency measures as possible way forward.
At the EU27 level, enhanced equivalency measures are also being looked at as a possible solution. But what does it all mean? Unless you work in the financial sector, it is possible that the amount of terminology being used around the issue of Brexit is bewildering.
In order to bring some clarity as to what equivalency measures are and if they could be adapted to suit both the EU and the UK, Delano talked to Antoine Kremer, head of European affairs at the ABBL and Alfi, on 7 May.
Margaret Ferns (MF): What exactly are Third Country Equivalency measures?
Antoine Kremer (AK): Third country equivalence decisions are unilateral decisions by the European Commission whereby it judges the legislation and supervisory standards of a given non-EU country to be equivalent to EU law. The possibility of doing so is provided by EU law for very specific parts of financial services legislation. The result of a decision is that it opens very targeted market access for financial institutions from that given third country.
They were introduced by the European legislator and are aimed at third countries with major financial centres like the US or Switzerland. When the United Kingdom leaves the European Union, it will take with it the most important financial centre worldwide, which also happens also to be closely integrated with the financial system of the rest of the EU and a major source of finance for the union.
The system of third country equivalence seems to be the only system on which the EU27 is currently willing to build its direct financial services interactions with the UK after the latter loses its access to the single market.
As a result of Brexit, third country equivalence decisions have suddenly been thrown into the political limelight. A key moment in this development was the Luxembourg State visit to Paris earlier this year where financial services and an “enhanced” third country equivalence regime were discussed in the Brexit context.
MF: In your view, are Third Country Equivalency measures applicable to Brexit?
AK: From the UK side, Brexit could have been handled in various ways, including the UK staying in the single market via the EEA, which would have significantly cushioned the disruptive economic and financial effects on both sides of the Channel. British red lines nevertheless make this impossible. For the moment, taking into account all these red lines and the integrity of the single market, third country equivalence decisions–although very limited as a solution–seem the only available option.
MF: Is what the UK wants realistic in your opinion?
AK: In the Brexit negotiations, when it comes to financial services, the UK wants to have its cake and eat it. This is understandable as a starting point in a hard-fought negotiation, but not tenable. Giving the UK direct access to the single market without it respecting the obligations that come with that right (four freedoms including immigration, EU Court of Justice jurisdiction, same legislation and supervisory rules) is not acceptable to the rest of the EU as it undermines the integrity of the single market.
MF: Do we even know what UK wants clearly?
AK: The rest of the European Union is a large financial services market for City of London and a major driver of the UK economy. Keeping that access is a major goal of negotiations for the United Kingdom. I understand that the current idea is to propose an ambitious free trade agreement that would include direct market access in financial services based on general regulatory equivalence and dialogue. Mrs May has nevertheless excluded passporting because the latter would include taking on EU legislation without having any say in its adoption.