An announcement on 26 March 2021 confirmed the conclusion of technical discussions on the text of the Memorandum of Understanding (MoU) provided for under the Joint Declaration on Financial Services Regulatory Cooperation agreed alongside the UK-EU Trade and Cooperation Agreement in December 2020 (see further our Brexit website update here). Formal steps must be undertaken on both sides before the MoU can be signed; however, indications are that this will be done expeditiously.
The MoU, once signed, will lay the groundwork for voluntary regulatory cooperation in financial services between the UK and the EU. The MoU establishes the Joint UK-EU Financial Regulatory Forum which will provide a platform to facilitate dialogue on financial services issues. The content of the MoU has yet to be made public and it remains to be seen how far it goes in terms of close regulatory cooperation and information sharing between the two sides. It is also understood that the MoU will not be legally binding as the UK had been advocating for.
Although the MoU is entirely separate from any decisions on regulatory equivalence (see our previous article here on Solvency II equivalence rulings), agreement on the MoU is seen as an important step forward given the EU position that it is a prerequisite for any further access rights being granted to the UK in the form of equivalence rulings. However, it seems unlikely that any announcement on equivalence decisions will be forthcoming in the short-term, particularly given the recent comments made by the EU Commissioner for Financial Services, Mairead McGuiness, that there is “no rush” in this regard. Furthermore, Ms McGuiness noted that any decision to grant full regulatory equivalence to the UK would depend upon the UK aligning to the EU’s regulations on a forward-looking basis. In light of various indications from the UK government that it will seek to diverge from EU rules over time, it seems inevitable that this issue will prove a key stumbling block to full regulatory equivalence being achieved by the UK.
If you have any questions on this topic, please contact any member of our Insurance Team or your usual William Fry contact.
Contributed by Catherine Carrigy