First Report Contents

Appendix 1: Correspondence: Equivalence in financial services

Letter from John Glen MP, Economic Secretary HM Treasury, to Lord Hodgson, Chair of the Secondary Legislation Scrutiny Committee

Equivalence in Financial Services

Thank you for your letter of 20 January requesting an update on the equivalence decisions made and an overview of all equivalence decisions in place week on commencing 12 April.

I understand that in the Grand Committee Debate on Financial Services Bill on Monday 8 March you raised similar questions regarding the UK’s existing equivalence arrangements with the EU. I also understand that on 22 March my Right Honourable Friend Earl Howe wrote to you setting out details of the existing equivalence arrangements with the EU.

I am therefore writing to provide you with the most recent information and hereby confirm that since the date of that letter there has been no change to the equivalence arrangements between the UK and the EU. To assist the Committee, Annex A provides a list of the equivalence regimes that exist in UK and EU law and are relevant to financial services, and notes which ones the EU has made a decision for in respect of the UK, and which ones the UK has made a decision for in respect of the EEA states. I hope that this adequately covers the information that you requested.

Annex B provides a summary of these equivalence regimes, for information. The references provided are to the relevant EU legislation.

12 April 2021

Annex A

Table 1: Table setting out where UK and EU have made equivalence decisions

Equivalence Regimes (References are to EU and onshored UK legislation)

Article

Decision made by the EU for the UK

Decision made by the UK for the EU1

Capital Requirements Directive and Regulation (CRD IV/CRR) (No. 575/2013)

Art. 107

No Decision

Full Decision

Art. 114, 115, 116

No Decision

Full Decision

Art. 132

No Decision

Full Decision

Art. 142

No Decision

Full Decision

Art. 391

No Decision

Full Decision

Solvency II (Commission Delegated Regulation No.2015/35 supplementing Directive No. 2009/138)

Art. 378

No Decision

Full Decision

Art. 379

No Decision

Full Decision

Art. 380

No Decision

Full Decision

European Markets Infrastructure Regulation (EMIR) (No 648/2012)

Art. 2A

No Decision

Full Decision

Art. 13

No Decision

Partial decision recognising clearing and margining rules for the purpose of intragroup transactions between UK and EEA subsidiaries

Art. 25

EU have granted UK a time-limited decision which applies from

01/01/2021 to 30/06/2022

Full Decision

Art. 75, 77

No Decision

No Decision

Credit Rating Agencies Regulation (No. 1060/2009, 462/2013)

Art. 5 (6)

No Decision

Full Decision

Benchmarks Regulation (No. 2016/1011)

Art. 30

No Decision

Full Decision

Regulation on Central Securities Depositories (CSDR) (No. 909/2014)

Art 25

EU have granted UK, a time-limited decision which applies from 01/01/2021 to 30/06/2021

Full Decision

Short Selling Regulation (No. 236/2012)

Art 17 (2)

No Decision

Full Decision

Markets in Financial Instruments Directive II and Regulation (MiFID/MiFIR)

Art. 23 MIFIR MIFID (STO)

No Decision

No Decision

Art 28(4) MIFIR (DTO)

No Decision

No Decision

Art 33 (2) MIFIR

No Decision

No Decision

Art. 38 MIFIR

No Decision

No Decision

Art. 47 MIFIR

No Decision

No Decision

Regulation on Transparency of Securities Financing Transactions (SFTR) (No. 2015/2365)

Art. 19

No Decision

No Decision

Art. 21(1)

No Decision

No Decision

Prospectus Regulation (No. 2017/1129)

Art. 29

No Decision

Full Decision

Annexes of delegated regulation 2019/980

No Decision

Full Decision

Transparency Directive (No. 2004/109)

Art. 23(4)

No Decision

Full Decision

Central Bank Exemptions

EMIR Art. 1

Full Decision

Full Decision

Market Abuse Regulation Art. 6

Full Decision

Full Decision

SFTR Art. 2

Full Decision

Full Decision

MiFIR Art. 1

Full Decision

Full Decision

Statutory Audit Directive (No. 2014/56, 2006/43)

Art 46(2)

No Decision

Full Decision

Art 47(3)

No Decision

Full Decision

Accounting Directive (No. 2013/34)

Art. 46

No Decision

No Decision

Annex B

Table 2: Short Summary of Equivalence Regimes

Equivalence Regimes

Article

Description

Markets in Financial Instruments Directive II and Regulation (MiFID/MiFIR)

Art. 23 and 28 (4) MIFIR

Allows firms to fulfil share trading obligation and/or the derivative trading obligation by executing trades on third country trading venues

Art 33 (2) MIFIR

Firms can meet derivatives trading obligation by following equivalent rules in a third country.

Art. 38 MIFIR

Third country trading venues and central counterparties (“CCPs”) recognised under EMIR may request access on non-discriminatory basis to CCPs and trading venues

Art. 46 (1) MIFIR

Allows third country firms to provide cross-border investment services to professional clients

Capital requirements directive and regulation (CRD IV/CRR) (No. 575/2013)

Art. 107(4) CRR

Allows institutions to treat exposures to third country investment firms, credit institutions and exchanges as exposures to similar domestic financial institutions.

Art. 114, 115, 116 CRR

The specific risk weights applicable to exposures to central governments, central banks, regional governments, local authorities, and public sector entities may apply to similar entities located in third countries for the purpose of calculation of the capital ratio of domestic financial institutions

Art. 132 CRR

Allows the application of CRR look-through provisions to CIUs managed by companies subject to equivalent supervision

Art. 142 CRR

A subsidiary located in a third country can be taken into account for the definition of ‘large financial sector entity’

Art. 391 CRR

Permits small firms to have higher large exposures limits for exposures to third-country banks.

Solvency II (Commission Delegated Regulation No.2015/35 supplementing Directive No. 2009/138)

Art. 378

Reinsurers from third-country can be recognised as equivalent as domestic reinsurers. Includes a temporary equivalence provision.

Art. 379

Third-countries solvency rules can be considered equivalent for the calculation of the consolidated capital requirements of domestic

insurance groups present in third countries. Includes a temporary equivalence provision.

Art. 380

The jurisdiction granting equivalence can recognise the equivalence of group supervision exercised by a third-country. Includes a temporary equivalence provision.

European Markets Infrastructure Regulation (EMIR) (No 648/2012)

Art. 2A

Enables derivatives traded on third country markets to be treated as exchange-traded rather than OTC

Art. 13

Third-country regimes can be considered as equivalent to avoid complicating or conflicting rules on OTC derivative transactions, including margining, intragroup transactions, the clearing and reporting obligations.

Art. 25

Recognition of central counterparties established in third countries

Art. 75, 77

Recognition of third country trade repositories

Prospectus Regulation (No. 2017/1129)

Art. 29

Equivalence of prospectus information: third country prospectus information requirements may be deemed to be equivalent to domestic prospectus requirements,

Annexes of delegated regulation 2019/980

3rd country GAAP with IFRS: An equivalence determination will allow third country issues in the domestic markets to prepare their consolidated accounts for use in a prospectus to use the accounting standards deemed relevant instead of using domestically-adopted IFRS

Transparency Directive (No. 2004/109)

Art. 23(4)

3rd country GAAP with IFRS: Equivalence of accounting standards

Accounting Directive (No. 2013/34)

Art. 46

Equivalence of third-country reporting requirements for payments to governments country-by-country reporting

Credit Rating Agencies Regulation (No. 1060/2009, 462/2013)

Art. 5(6), 5(7)

Credit rating agencies authorised or registered in third country comply with legally binding requirements which are equivalent to the requirements of this Regulation

Statutory Audit Directive (No. 2014/56, 2006/43)

Art 46 (2)

Allows the jurisdiction granting equivalence to derogate from the requirements of Art. 45 to register and oversee third country auditors where the third country has been recognised as equivalent. Also includes transitional equivalence.

Art 47(3)

Allows domestic audit authorities to agree working arrangements with third country competent authorities for the transfer of audit working papers and investigation reports where the third country competent authority has been approved as adequate.

Regulation on Central Securities Depositories (CSDR) (No. 909/2014)

Art. 25

Recognition of third country CSDs to provide issuance and maintenance services for domestic law securities.

Regulation on Transparency of Securities Financing Transactions (SFTR) (No. 2015/2365)

Art. 19

Recognition of third country trade repositories

Art. 21(1)

Equivalence of legal, supervisory and enforcement arrangements of a third country ensuring protection of professional secrecy

Benchmarks Regulation (No. 2016/1011)

Art. 30 (2), 30(3)

Administrators authorised or registered in third country can be recognized as equivalent to the requirements under this Regulation in order to be used in the jurisdiction granting equivalence.

Short Selling Regulation (No. 236/2012)

Art. 17(2)

The legal and supervisory framework of a third country market may be considered as equivalent so it can be exempted for market making activities and primary market operations

Market Abuse Regulation (MAR) (No. 596/2014)

Art 6(5)

Exemption for monetary and public debt management activities: This Regulation may not apply to certain equivalent public bodies and central banks of third countries





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