On July 29, the European Commission (EC) published a communication on equivalence in the area of financial services (Communication). The EC states that, in light of recent policy developments, it is timely to take stock of the EU’s approach to equivalence.

The Communication discusses the purpose and importance of equivalence. The EC states that each new decision is looked at individually and in detail to ensure that the policies of third countries are compatible with those of the EU, and that any equivalence determination is beneficial to, and sustainable for, both parties.EU financial services law includes approximately 40 provisions that allow the EC to adopt equivalence decisions and as of July 29, the EC has adopted more than 280 equivalence decisions for more than 30 countries.

The EC also highlights its recent improvements to the EU equivalence rules. The Communication states that the EC has engaged in a robust dialogue with the European Parliament, the Council of the EU and other interested stakeholders on the necessary improvements to the EU’s approach to determining and maintaining equivalence. Significant changes have been introduced into the equivalence regimes through a number of legislative amendments relating to the proposed:

  • Omnibus Regulation relating to the powers, governance and funding of the European Supervisory Authorities (ESAs), where the role of each ESA in monitoring equivalent third countries is enhanced;
  • regulation amending the European Market Infrastructure Regulation (EMIR) supervisory regime for EU and third-country central counterparties (EMIR 2.2), where a more risk-sensitive and proportionate approach for third-country regimes is being introduced; and
  • Investment Firms Directive, where new assessment criteria, safeguards and reporting obligations for third-country firms are being created.”

In making equivalence assessments, the EC states that it is particularly concerned with identifying risks to the EU financial system. It also notes that equivalence empowerments do not confer a right on third countries for their frameworks to be assessed and that adhering to international standards does not automatically lead to an equivalence decision.

The EC indicates that in the forthcoming months it will work closely with the ESAs on their goals for 2019 and 2020, including:

  • continuing work on equivalence assessments, especially relating to the Benchmarks Regulation;
  • repealing existing decisions where the third-country framework no longer delivers the necessary outcomes (for example, under the Credit Rating Agency (CRA) Regulation—the EC announced that existing CRA equivalence decisions for Argentina, Australia, Brazil, Canada and Singapore have been repealed.);
  • focusing on high-impact areas and third countries (EMIR is mentioned in this regard);
  • focusing on areas where there is an impending review or expiry of an equivalence deadline (the Capital Requirements Regulation is mentioned in this regard); and
  • examining market segments that are undergoing dynamics or structural changes (the Markets in Financial Instruments Regulation (MiFID II) is mentioned in this regard).

The Communication is available here.