The London Times has reported that the UK and the EU have reached a provisional agreement to the effect that the EU will hold British financial services and personal data to be 'equivalent' after Brexit for the purposes of those of its directives and regulations that require it.

'Equivalence' is a label that the EU applies to the regimes of other countries to whose businesses it wants to give preferential treatment. It argues, sometimes not wholly convincingly, that the label only applies to national laws and regulations that are as good as its own.

The Money Laundering Directive allows EU banks to rely on banks outside the EU that are held to reside in 'equivalent' jurisdictions for the verification of identities and other examples of 'due diligence.' In December, the EU made decisions about the equivalence of the legal and supervisory regime of the USA, Australia and Hong Kong for national securities exchanges and alternative trading systems, as required by the second Markets in Financial Instruments Directive or MiFID II, thereby allowing EU investors to continue trading shares listed on several stock exchanges in those countries after the effective date of 3rd January this year.

The London Financial Times has speculated that equivalence might "fall under the governance of the wider UK/EU free trade treaty, allowing either side to change financial rules but consulting with each other beforehand."

The General Data Protection Regulation does not contain an 'equivalence' section. Instead, article 45(1) states: "A transfer of personal data to a [non-EU] country or an international organisation may take place where the [European] Commission has decided that the country...in question ensures an adequate level of protection." Adequacy appears to satisfy a lower standard than equivalence. In any event, the Times believes that the EU will find the UK's regime to be adequate, not least because it is based wholly on the GDPR, which came into force on 25 May.

'Passporting' rights, i.e. the right to market funds from outside the EU to prospective customers inside the EU in line with the Alternative Investment Fund Managers Directive, are thought not to be included in the tentative deal, although everything is rumour at this stage.

The Government evolved the 'Chequers Plan' in the summer, but its progress was arrested because of dissent in the cabinet and the Democratic Unionist Party, on whose votes the Government relies for its survival. Since then, negotiators have had to go back to the table.

Compliance Matters spoke to Thomas Donegan, a partner at the City law firm of Shearman & Sterling, about the likely shape of a future deal.

"If there is a deal, I would suspect it is close to what Chequers says about financial services. That details an 'equivalence plus' arrangement. This aims to address some of the issues around equivalencies, whose regimes differ between the various directives.

"The main question is how to keep equivalence going as part of a long-term deal.  The Chequers proposal involves deep regulatory co-operation, co-ordinating changes to laws and improving the processes around revocation (the question of whether the European Commission or UK can take equivalence away without - or at short - notice). The UK Government wants longer notice periods, with some processes added, to allow people to have greater certainty that it's a long-term deal.

"The last job is filling in the gaps. For example, there isn't any equivalence regime for deposit-taking or lending under CRD IV, settlement finality under the Settlement Finality Directive or direct insurance in the various Insurance and Solvency Directives (although there is equivalence for reinsurance). Those gaps will need new EU and UK laws, to establish new equivalency regimes."