The announcement by the European Commission (the “Commission”) on 27 June 2023 that it had signed a memorandum of understanding (“MoU”) on EU-UK regulatory cooperation in financial services is a positive development for the financial services market in both the EU and the UK and, in particular, for market participants in this jurisdiction given the strong financial services connections between Ireland and the UK.¹
The EU/UK Joint Declaration on Financial Services Regulatory Cooperation² committed to agree the MoU by March 2021 but, whereas the text of the MoU appeared to have been agreed in principle within that timeframe³, its formal conclusion was significantly delayed. The signing of the MoU reflects a renewed commitment of the EU and UK to voluntary regulatory cooperation in the area of financial services facilitated by the agreement of the Windsor Framework in February this year.

The purpose of the MoU is to outline a post-Brexit framework for structured, voluntary regulatory cooperation between the EU and the UK in financial services. In this respect, the MoU states that the EU and the UK will “jointly endeavour to pursue a robust and ambitious bilateral regulatory cooperation in the area of financial services” with both sides having “a shared objective of preserving financial stability, market integrity, and the protection of investors and consumers”.

While the signing of the MoU is to be welcomed, it should be noted that it is limited in nature as it does not create legal rights or obligations and is not intended to interfere with cooperation outside of its framework or with cooperation between supervisory and resolution bodies. In particular, the MoU does not restore, or indicate any intention to restore, any EU ‘passporting rights’ to UK financial institutions.

The key regulatory issues with which market participants grapple - such as ESG, FinTech and capital requirements - have a global reach and market participants consistently emphasise the value of a coordinated regulatory approach across jurisdictions. While the MoU is, without doubt, limited in nature and does not restrict the ability of the EU or UK to take their own regulatory measures, the introduction of a framework which provides a mechanism for the EU and the UK to cooperate and coordinate, including in international bodies, is to be welcomed. This framework will, ideally, result in improved certainty and consistency on cross-border regulatory issues for market participants operating in both the EU and the UK.

The lynchpin of the MoU is the creation of the Joint UK-EU Financial Regulatory Forum (the “Forum”). Meetings of the Forum will be held alternately in the EU and the UK, at least twice a year, and whenever considered necessary. The Forum may cover a range of activities, including:
• promoting timely domestic implementation of international regulatory standards;
• sharing information on regulatory developments to allow for identification of potential cross-border implementation issues;
• exchanging views on the respective policies, rules and processes concerning deference regimes, such as equivalence;
• dialogue on autonomous decisions to adopt, suspend or withdraw equivalence relevant to one or the other side;
• discussions on macro-prudential developments and financial stability risks;
• exchanges of views on regulatory issues; and
• keeping each party informed about efforts to prevent and combat money laundering and terrorist financing as they relate to the financial services sector.

A key benefit of the Forum will be the sharing of information on regulatory developments to allow for the identification of potential cross-border implementation issues. This development will be welcomed by market participants subject to EU and UK compliance obligations, although, as might be expected given its limited nature, the MoU does not provide detail on how such potential cross-border implementation issues may be resolved.

In addition, the introduction of a dialogue in the Forum to consider decisions to adopt, suspend or withdraw equivalence is a helpful development, given the relatively few equivalence decisions which have been adopted so far by the EU. The Commission has emphasised that the MoU will not address the access of UK-based firms to the EU’s Single Market or EU firms’ access to the UK market. In addition, the Commission has stated that the MoU is not intended to “prejudge” the adoption of equivalence decisions. ⁴

There are indications, however, that the MoU may facilitate resumption of equivalence assessments by the EU, which appear to have been suspended pending formal conclusion of the MoU.

The MoU states that the Forum may start its activities as soon as the MoU is signed by both sides. Now that the MoU has been signed, Commissioner McGuinness has indicated that the Forum is expected to hold its first meeting this Autumn.⁵

The MoU has been widely welcomed. Commissioner McGuinness remarked that the EU-UK “relationship and future engagement in financial services will be built on a shared commitment to preserve financial stability, market integrity, and the protection of consumers and investors”⁶. AFME stated that it hoped “that the MoU will now be ratified by the Council, and that the MoU will serve as a basis for a cooperative, stable, and trustful long-term relationship between the EU and the UK in the area of financial services”⁷.

In our view, the signing of the MoU is a promising development and should be viewed as a constructive step towards a revitalised EU-UK financial services regulatory relationship.