On July 12, the UK Department for Exiting the European Union published a white paper, which sets out the United Kingdom’s proposal for the UK-EU relationship after the United Kingdom’s withdrawal from the European Union on March 29, 2019 (Brexit) through what it terms “an association agreement.” Notably, the white paper features differing approaches with respect to movement of goods, services and people.

Regarding services, the white paper supports a new arrangement, which would reduce the level of UK-EU access (and vice versa) from the existing position. For financial services, the UK government advocates a framework based around upgrading current third-country equivalence regimes to reflect the interconnectedness between the United Kingdom and the European Union; this would include a reciprocal recognition of equivalence under all existing third-country regimes, effective from the end of the implementation period (intended to be December 2020), to provide initial confidence to the markets. Crucially, however, the new framework would not replicate the current EU passporting regimes.

In terms of future equivalence and determinations, the white paper supports an arrangement through “a bilateral framework of treaty-based commitments” which should include:

  1. Common principles and objectives for the governance of the relationship;
  2. Extensive supervisory cooperation and regulatory dialogue from an early stage of any proposed changes; and
  3. Predictable, transparent and robust processes (including a transparent assessment methodology, and a structured withdrawal process, for equivalence).

The white paper states that both sides should also express their shared intention to avoid divergent regulation of financial services to reduce the potential for regulatory arbitrage, while simultaneously respecting one another’s autonomy to legislate for their respective interests (e.g., allowing the United Kingdom to impose higher than global standards in certain cases).

In addition, according to the white paper, although it will no longer have jurisdiction in the United Kingdom after Brexit, the Court of Justice of the European Union will remain the interpreter of EU rules. In effect, the United Kingdom will continue to be subject to EU case law where it is adhering to a common UK-EU rulebook (e.g., relating to goods and state aid).

The white paper represents a compromise position from the UK government, but may not be seen as going far enough by the EU negotiators. In particular, previous EU statements have warned that the United Kingdom cannot “cherry pick” in relation to free movement of goods, services and people. The publication of the white paper is perceived by many as a significant step in the Brexit negotiations, and the UK and EU financial media reports that both sides continue to hope that a deal can be reached in autumn 2018, prior to the official exit day in March 2019.

The white paper is available here.