Series 9 Back to Brexit Basics – Equivalence in financial services

Jul 03, 2018

Last week, as part of Series 8 Back to Brexit Basics, we looked at what losing passporting rights might mean for the UK.  This week we look at equivalence and what this process entails.


Should the UK lose passporting rights when it ceases to be a member of the EU and EEA, a possible option for the UK could be to apply to the EU for equivalence.  Equivalence can in some cases allow countries from outside the EU to access the Single Market in limited circumstances.

According to the European Commission, equivalence means that one country declares that the standards of another in a defined area are sufficiently close to its own to be deemed ‘equivalent.’  It is the basis for granting a non-EU banks and financial services firms certain rights in the EU financial services market. 

Equivalence cannot give full passporting rights to non-EU banks or financial services firms.  The EU market access rights available under equivalence are considered to be narrower, more onerous and more unstable. Many banking and financial services cannot be provided at all via equivalence.  For example, there is no equivalence regime applicable for UCITS (Undertakings for Collective Investment in Transferable Securities) which allows the marketing and sale of certain funds. 

How is equivalence determined? 

Equivalence is not negotiated but requested from the European Commission.  Assessments are launched at the discretion of the European Commission and a detailed assessment of the regulatory regime of the third country is carried out. 

Determining equivalence is not based on a direct or exact transposition of EU laws into another country’s rules. Rather it is a close comparison of the intent and outcomes of the EU system and that of the other country. 

The length of the process may also vary considerably as the European Commission has no fixed deadlines for completion.  Some research has found that the process can take between two and four years. 

If the equivalent country changes its rules in any way that materially affects a judgement of equivalence, equivalence and any rights based on it can be removed. This can also result from the EU changing its own rules.  Equivalence can be revoked with only 30 days’ notice and this could make long term investment plans difficult. 

Decisions on equivalence are listed on the European Commission website. 

Read all of our Brexit updates and Back to Brexit Basics on the dedicated Brexit section of our website.