HM Treasury has decided to judge various countries in the European Economic Area to be 'equivalent' to the UK in various areas of finance - with all the consequences for financial free trade that that brings - and put its judgments into practice at the end of the year.
It is at year's end when the "transitionary period" of the United Kingdom's departure from the European Union comes to an end. If no version of a free-trade deal is done between the two parties by then, the consequences for both German manufacturing and British financial services will be noteworthy.
The Treasury's decisions - which rely on no reciprocity from Europe - cover various sectors and were laid before Parliament this week. The decisions for which the Financial Conduct Authority is the leading regulator are as follows. In some instances, the decisions will grant EEA firms access to the UK market. In other cases, those firms will have to take some kind of action to benefit.
On the EU's European Market Infrastructure Regulation (Article 13), regarding the intragroup transactions exemption
Thanks to this decision, British firms will be able to apply for the margining and/or clearing exemption for intragroup transactions if their intragroup counterparties are located in the EEA and, if they are granted this, they may benefit from the exemption on a non-time-limited basis. However, they will still have to realise that their EEA intragroup counterparties may not be entitled to reciprocal exemptions under the EU EMIR requirements and should look and see.
On the EU's European Market Infrastructure Regulation (Article 2A), regarding regulated markets
Thanks to this decision, British firms will be able to count EEA trading venues as regulated markets under Article 2A of UK EMIR. No firm need take any action to benefit from this decision. The FCA will publish a list of all regulated markets in accordance with UK EMIR, including equivalent third country markets, before the end of the transitionary period.
On the EU's Short Selling Regulation (SSR) (Article 17), regarding the market-making exemption
Thanks to this decision, any EEA firm that has not already submitted a notification for a market-maker exemption under UK SSR can now do so without having to be a member of a British trading venue and can, instead, submit a notification to the FCA by virtue of being a member of an EEA trading venue. EEA firms that want to benefit from this exemption ought to notify the FCA 30 days before they intend to do so. EEA firms that have joined a British trading venue and have already notified the FCA need not take any action.
On the Credit Rating Agencies Regulation (CRAR) (Article 5), regarding certification
Thanks to this decision, EEA credit-rating agencies registered with the European Securities and Markets Authority whose credit-rating activities are not of systemic importance to the financial stability or integrity of Britain's financial markets may apply to the FCA for certificates. British firms that use ratings for regulatory purposes will be able to use credit ratings issued by an EEA credit rating agency that is certified by the FCA and has no presence or affiliation in the UK.
Firms can already make use of the separate transitional regimes provided by UK CRAR, notably the temporary registration regime available to EEA credit-rating agencies that want to issue ratings in the UK after the end of the transitionary period.
On the Benchmarks Regulation (BMR) (Article 30)
This decision guarantees that EEA benchmark administrators will be able to access British markets and that entities supervised by British regulators can continue to use their benchmarks on that basis.
The Government is proposing to extend the current transitional period for all foreign benchmarks set out in UK BMR from the end of 2022 to the end of 2025 in the recently published Financial Services Bill. Under the existing transitional arrangements, entities supervised by British regulators are permitted to use all foreign benchmarks until the end 2022 without further action from the EEA benchmark administrator. If the Bill is enacted, this period will extend to the end of 2025.
EEA benchmark administrators ought to notify the FCA (which will publish further details on the process) if they wish to benefit from this decision.