Financial Services for the EEA: Ministerial Equivalence and Exemption Directions

The European Market Infrastructure Regulation (Article 2A) Equivalence Directions 2020 determine that, for the purposes of article 2A of the EMIR, markets in each EEA state comply with legally binding requirements which are equivalent to the requirements laid down in UK law, and are subject to effective supervision and enforcement in each such EEA state. This will enable UK firms to continue to treat derivatives traded on EEA regulated markets as exchange traded derivatives rather than OTC derivatives. Facilitating this continuity for firms minimises the disruption they will experience following the end of the transition period.

The Central Securities Depositories Regulation Equivalence Directions 2020 determine that central securities depositories (“CSDs”) in each EEA state comply with legal requirements which are equivalent to the central securities depositories regulation as it will form part of UK law at the end of the transition period (“CSDR”) and are appropriately supervised in the relevant EEA state. With equivalence granted, the Bank of England can then assess CSDs in the EEA for recognition (subject to establishing co-operation arrangements with the relevant EEA authorities), allowing those CSDs, once recognised, to continue to service UK securities and to exit the transitional regime contained in onshored article 69 CSDR and part 5 of The Central Securities Depositories (Amendment) (EU Exit) Regulations 2018.

The Benchmarks Regulation Equivalence Directions 2020 determine that benchmark administrators in each EEA state comply with legal requirements which are equivalent to the benchmarks regulation as it will apply in UK law at the end of the transition period (“BMR”), and are appropriately supervised in the relevant EEA state. This equivalence decision acts as a mechanism to enable such administrators to be added to the FCA’s benchmarks register, and to enable them to provide benchmarks to supervised entities in the UK.

The Credit Rating Agencies Regulation Equivalence Directions 2020 determine that, for the purposes of article 5 of the credit rating agencies regulation as it will form part of UK law at the end of the transition period (“CRAR”), the legal and supervisory framework of each EEA state ensures that credit rating agencies (“CRAs”) authorised or registered in each EEA state (i) comply with legally binding requirements which are equivalent to the requirements resulting from CRAR; and (ii) are subject to effective supervision and enforcement in each such EEA state. This means non-systemic credit rating agencies authorised or registered in the EEA can apply to be certified in the UK.

The Short Selling Regulation Equivalence Directions 2020 determine that EU markets are subject to the appropriate law and supervision for the purposes of article 17 the short selling regulation as it will form part of UK law at the end of the transition period (“SSR”). This means that EEA market makers will be eligible to make use of the exemption in article 17 of SSR (which disapplies certain short selling restrictions and reporting requirements) subject to complying with certain regulatory requirements.

Alongside the above directions, today I am also laying before Parliament The Central Counterparties (Equivalence) Regulations 2020 pursuant to regulation 14(1) of the Central Counterparties (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2018 (S.I. 2018/1184). The former statutory instrument specifies that the regulatory framework for central counterparties in EEA states is equivalent to the UK’s framework. After the end of the transition period, these regulations will have effect as if made under article 25(6) of EMIR. Therefore, subject to entry into an appropriate co-operation arrangement between the Bank of England and the relevant national competent authority in that EEA state, and a CCP-specific recognition determination by the Bank of England, after the end of the transition period UK firms will be able to continue using EEA CCPs and to exit the transitional regime contained in part 6 of The Central Counterparties (Amendment, etc., and Transitional Provision) (EU Exit) Regulations 2018 (S.I. 2018/1184).

The Department for Business, Energy and Industrial Strategy will be laying The Statutory Auditors and Third Country Auditors (Amendment) (EU Exit) (No. 2) Regulations 2020 to grant audit equivalence to the EEA states and approve as adequate their audit competent authorities.

To provide clarity and stability to industry, we are announcing as many decisions as we can in favour of openness, and where it makes sense to do so. The granting of these equivalence decisions provides a broad range of benefits in terms of having open markets that are well regulated, facilitating firms’ ability to pool and manage risks effectively, and supporting UK and EU clients’ access to financial services and market liquidity.

[HCWS567]