UK-EU MoU on regulatory cooperation in financial services: towards a more constructive relationship?

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UK-EU MoU on regulatory cooperation in financial services: towards a more constructive relationship?

31 May 2023

HM Treasury has published the text of the awaited draft memorandum of understanding (MoU) on UK-EU regulatory co-operation in financial services, which has already been adopted by the European Commission. The focus of the MoU is on creating a post-Brexit framework for voluntary regulatory cooperation, rather than anything more detailed. To this end, a new Joint EU-UK Financial Regulatory Forum is being established. There is emphasis on the freedom of both parties to continue to implement regulatory, supervisory or other legal measures that either considers appropriate. The MoU has no immediate impact on equivalence or mutual passporting/market access.

“This is just the first yet significant step towards a more constructive financial services relationship between the UK and the EU – one that is built upon mutual benefit and in the spirit of cooperation.”

(Andrew Griffith MP, Economic Secretary to the Treasury and City Minister)

What are the main aims of the MoU?

According to the draft MoU, based on a shared objective of preserving financial stability, market integrity, and the protection of investors and consumers, the arrangements contained in it are aimed at providing for:

bilateral exchanges of views and analysis relating to regulatory developments and other issues of common interest;
transparency and appropriate dialogue in the process of adoption, suspension and withdrawal of equivalence decisions;
bilateral exchanges of views and analysis relating to market developments and financial stability issues; and
enhanced cooperation and coordination including in international bodies as appropriate.

In addition – and if appropriate and consistent with applicable policy, law and good administrative practices - both parties agree to endeavour to share information on regulatory developments to allow for a ‘timely identification of potential cross-border implementation issues’, to the extent that such information is available and can be shared between them.

Joint EU-UK Financial Regulatory Forum

The purpose of the Joint EU-UK Financial Regulatory Forum that will be established under the MoU is to ‘serve as a platform to facilitate structured regulatory cooperation in the area of financial services’ under the Joint Declaration on Financial Services Regulatory Cooperation between the EU and the UK of 24 December 2020 and the MoU. In particular, the Forum is intended to take stock of progress and undertake forward planning of regulatory cooperation with general operational objectives to:

improve transparency;
reduce uncertainty;
identify potential cross-border implementation issues, including concerns linked to potential regulatory arbitrage by firms;
as appropriate, consider working towards compatibility of each other’s standards;
when relevant, promote domestic implementation consistent with international standards;
share knowledge to facilitate a common understanding of the EU and UK’s regulatory frameworks; and
exchange information and views on other issues of common interest within the scope of these regulatory cooperation arrangements.

Some of the examples of Forum activities listed in the draft MoU are:

the promotion of timely domestic implementation of relevant international regulatory standards in the financial services sector taking into account the specific characteristics of the EU and UK regulatory regimes;
dialogue on the parties’ autonomous decisions to adopt, suspend or withdraw equivalence relevant to one or the other side;
where practicable, sharing positions on agenda items prior to key G20 or other international meetings; and
keeping each other informed, through the exchange of relevant supervisory and enforcement policies, to the extent that such information can be shared between Participants, about how effective supervision and enforcement of rules for implementing internationally agreed standards have been provided for, in particular in the areas where the UK or EU relies on the regulatory and supervisory framework of the other side.

No restrictions on implementation of own regulatory, supervisory or legal measures

It is made clear that discussions in the Forum – as well as the regulatory cooperation more generally - will not restrict the ability of either the EU or the UK to implement regulatory, supervisory or other legal measures that either considers appropriate.

No legal/financial rights or obligations

There is also clarification that the MoU does not create rights or obligations under international or domestic law, nor any financial obligations resulting from its implementation.

Next steps

Final political endorsement of the MoU by the Council of the EU is awaited, following which HM Treasury and the Commission will sign the MoU.

If you would like to discuss the MoU or any other issues relating to the post-Brexit financial services regulatory landscape, please get in touch with one of the listed lawyers or your usual Hogan Lovells contact.

Authored by Eoin O’Connor and Virginia Montgomery.