We are currently ?living in the gap between the deal and what might come next?.

This is a phrase that Rachel Kent (Partner, Hogan Lovells) used to sum up the time in between the end of the transition period and the future financial services regime in the UK. Rachel was joined by Stephen Adams (Senior Director, Global Counsel), Brian Hayes (CEO, Banking and Payments Federation Ireland (BPFI)) and Conor Lawlor (Director, Capital Markets and Wholesale, UK Finance) at a UK Finance webinar on 14 January 2021.

The transition period expired on 30 December 2020, thereby removing UK access to the passporting regime and membership of the single market. The EU-UK Trade and Cooperation Agreement (TCA), agreed on 24 December 2020 and applicable from 1 January 2021, laid out the details of the future relationship between the UK and the EU. This webinar delved into what the TCA means for financial services. We touch on a selection of those points below.

The ?chapter? on financial services may be considered 'thinner? than it might have been, although in part because the content on non-discrimination and market access is incorporated in the section covering general services provisions as opposed to within the specific section for financial services. Also - unlike the EU-Japan Free Trade Agreement (FTA) - there is no detailed content on regulatory cooperation included within the TCA (beyond the provision on international standards). Regulatory cooperation has been addressed in a parallel declaration to the TCA. This commits both sides to establish by March 2021 a memorandum of understanding or cooperation framework (the ?MOU framework?), covering exchanges of views on regulation and 'transparency and appropriate dialogue? on equivalence-related processes. It does not however commit both sides to make future equivalence decisions.

With regard to equivalence, there are almost 60 determinations relating to financial services. The chancellor's 9 November statement announced a package of UK equivalence decisions with respect to the EU and EEA member states. On the EU side temporary key equivalence decisions have been granted as follows:

1. ESMA announced on 11 December that Euroclear UK & Ireland Limited (EUI), the central securities depository (CSD) established in the UK, would be recognised as a third-country CSD until 30 June 2021. This decision followed the European Commission's equivalence decision that CSDs established in the UK are equivalent in accordance with CSDR.
2. ESMA recognised three UK central counterparties (CCPs) as third-country CCPs under European Market Infrastructure Regulation (EMIR). This means that these clearing houses can continue to be used for European trades until 30 June 2022.

As regards future equivalence determinations, businesses will inevitably have to adapt in the interim. There may therefore be diminishing returns to equivalence decisions in the future if businesses feel the cost of readapting outweighs the future benefit.

In summary, the commitment to establish a MOU is welcomed. It should support a more fruitful financial services relationship and add an element of clarity for the industry, but it is not a mechanism for enabling immediate market access between the UK and the EU.

If you would like to know more information on the work of UK Finance and our members, please reach out to Rebecca Simons.