The Political Declaration provides a high-level basis for future cooperation between the UK and the EU, including three concise bullet points on financial services. It is worth noting, that the Political Declaration on future ties between the UK and the EU is not yet finalised, Michel Barnier comments that it will be agreed by Tuesday November 20. Our Global Head of Financial Services, Jonathan Herbst, has commented on the Political Declaration published by the Government alongside the Withdrawal Agreement:
While it is not legally binding, the declaration of political principles is significant in indicating the framework for negotiations. There are some principles for the development of the regime such stable markets and co-operation but these are set in the context of the autonomy of each side in its regime design. This is important as it reflects both the EU and UK positions that they cannot lose their freedom of action. It follows the approach of the UK Government’s White Paper while giving some more substance to the shared principles which will guide the parties in the use of their autonomy. There is a reference to the parties being able to take steps necessary for prudential purposes. This is a more worrying reference as the key question will be the certainty of any grant of equivalence of an ability to impose additional barriers. This will be an area to watch carefully in the upcoming negotiations.
One of the big concerns of the City has been the timing and substance of any grant of equivalence by the EU side. The picture here is mixed. On the timing, there is a clear commitment to work towards grant of equivalence by June 2020 which is designed to deal with the original concerns that the EU would not even start the process until the end of the transition period. On the scope of equivalence, the position is less clear. Equivalence is not stated as being limited to the current EU framework, e.g. as under Article 46 of MiFIR, but equally the possibility of a broader equivalence which might cover, for example, banking services is not ruled out. Also the text is silent on the timings and process for any withdrawal of equivalence. This looks like one of those areas which will need to be negotiated in the coming months.