There are widespread concerns from financial services firms that no MIFIR equivalence assessments will be made by the end of the transitional period on 31st December 2020. On that date, any existing “passports” cease to apply, meaning that UK-based firms previously doing business into the EU27 will need to check the EU local law to see if there is an exemption allowing them to or not – such as an “overseas person regime” similar to what the UK has.
Footnote 21 of the EC’s 9 July 35 page “communication” on getting ready for the end of the transitional period (pages 12-13 cover financial services) says that the EC will not make any equivalence assessment “in the short or medium term” because “the EU legal framework is not yet fully in place” in respect of seven areas, including the MIFIR “Derivatives Trading Obligation”, and MIFIR article 47 (which would permit UK firms to provide financial services into the EU27 for EU professional clients and eligible counterparties). The EC’s position seems to be that following Brexit-inspired amendments made to MIFID and MIFIR in November last year in the Investment Firms Regulation and the Investment Firms Directive, including tightening up the reverse solicitation rule, requiring non-EU firms to make annual reports to ESMA and giving ESMA the power to ask them to provide data on all transactions done in the EU, on their own account as well as on behalf of a client, for a period of five years, and requiring a more thorough assessment of equivalence in the case of countries which have systemic importance to the EU (i.e. the UK), it would not make sense to make an assessment under article 47 until, in the words of recital (29) of the IFR, a “proportionate corresponding regulatory reporting framework” has been developed “in conjunction with the new prudential regime”. The view outside Brussels seems to be that this is political, and not what the Political Declaration had envisaged.
Equivalence is not a replacement for passporting, and most of the 40 potential equivalence declarations have nothing to do with market access – for example, favourable capital treatment for EU firms with debt exposures to “equivalent” countries’ institutions. There is a key one for UK CCPs under EMIR (where the EC has said it will issue a temporary equivalence decision), a similar one under MIFIR for UK trading venues under the DTO, and the big one, relating to MIFID/MIFIR, which would cover market access by UK firms to the EU market. In contrast to most of the EU, EU firms will benefit from the UK’s temporary permissions regime (under which the FCA has received applications from more than 90% of the 1,585 EU27 firms currently passporting into the UK - including more than 100 banks) plus the UK’s overseas person regime under article 72 of the Regulated Activities Order under FSMA.
and then 