However, the CJEU is not bound by precedents. It is necessary to interpret the Treaties that make up the EU`s economic constitution in order to ensure that certain results are achieved. The indirect effects of the measures taken by the contested body could theoretically have had a potential impact on the objectives pursued by the Treaty[33]. The IRSG report itself says the rulings could clarify whether either party should change its regulatory system to comply with the terms of the EU-UK deal. This, of course, does not distinguish it from any other agreed trade agreement. However, the sector`s strategic importance to the UK may have made trade disputes or the threat of disputes over the EU more indirect than those caused by other trade agreements. The CJEU could have seen this dispute settlement body as a threat to its power of interpretation and the coherence of the EU legal order, and could therefore have encouraged the Court to show legal innovation and block the introduction of this model[34]. It is striking that the Withdrawal Agreement avoids such concerns by giving the CJEU the exclusive right to resolve any legal issues raised before the arbitration panel established for the purposes of this Agreement[35]. A quick solution therefore does not seem likely.
While a possible compromise is likely, the uncertainty and associated delays will lead to further changes, particularly with regard to corporate restructuring, which cannot be easily reversed. If the EU and the UK reach an agreement that allows for broad equivalence in financial services, their strained political ties could lead companies to be reluctant to rely on the stability and longevity of such an agreement. Just look at the change in tone between the EU and Switzerland in 2019 to see how quickly recognition can be withdrawn. The financial services section of the Political Declaration appears to emphasize the regulatory autonomy of the parties in the application of separate equivalency regimes, but the wording may be interpreted differently. We explained how the UK`s original approach could have allowed for circumvention of the regulations. These potential circumventions have been maintained in the White Paper proposals. Such circumvention could deprive the EU of “control” over how financial services are regulated within the EU`s borders. The rules and institutions that the UK seems to be proposing could (intentionally) make it very difficult, if not impossible, to correct an excessive weakening of regulation (from the EU`s point of view). It is very difficult to imagine how a British desire for unilateral sovereignty instead of bundled sovereignty in financial services could be reconciled with the desire to continue selling largely unfettered exports of financial services to a wider trading bloc that wants to preserve its bundled regulatory sovereignty. Privileged access is particularly unlikely to be granted when there have been significant arguments from British elites that the benefits of leaving the EU lie in the deregulation of the financial services sector in the UK. One of the critical rules of any decision-making system is the default setting that applies when no decision can be made. If the parties to an agreement do not really share the same objectives, one of the parties may seek an institutional design that allows an impasse and therefore a return to a defect that favors them.
While it is not possible to agree on regulatory approaches, equivalence and mutual recognition can lead to very different failures. Mutual Recognition Agreements (MRAs) are agreements between two trading partners aimed at eliminating technical barriers to trade. This is one of the issues that will play a role in the trade negotiations between the UK and the EU. [30] Ferran, E (2018) notes that in the chapter “Regulatory Parity in Post-Brexit UK_EU Financial Regulation” in “Brexit and Financial Services”, there are different “philosophies of animation” between international trade regulation and international financial regulation. The proposed form of mutual recognition in the UK could have given the UK more room for manoeuvre than would even be available to EU Member States. It could have given it the opportunity to ignore additional standards imposed by other Member States, individually or jointly, if they went beyond the preferences of the United Kingdom. It would have been unprecedented if the EU had accepted it for a third country. Chancellor Rishi Sunak and Federal Councillor Ueli Maurer today agreed on the next stage of negotiations between the United Kingdom and Switzerland on an agreement on financial services. In the recently published IEA improving Global Financial Service Regulations, we look at what the UK can do in the context of Brexit not only to improve the UK`s financial services sector, but also to improve capital availability, hedging mechanisms and insurance internationally. In this way, it aims to encourage reflection on what a more effective legal framework for financial services would be and how the UK could help implement it in its domestic regulation as well as with its international trading partners. Failure is important for the parties if there is a fear that they will not pursue the same goals or that they may diverge over time. While the UK currently insists that it wants a high level of regulation of financial services, there is ample evidence that this is not an undisputed view in British political circles[25].
Typically, EU rules prescribe at least one scope/minimum level of regulation, so a default that allows the UK to deviate from EU rules in the event of an impasse would deviate from the status quo ante, as it could allow the UK to deviate from EU minimum standards. “Our aim should be to create each other`s reciprocal market access capacity, ensuring that the UK and the EU maintain the same regulatory outcomes over time, with a mechanism to determine the appropriate consequences if it is not maintained. But given the highly regulated nature of financial services and our shared desire to manage risks to financial stability, we would need a collaborative and objective framework based on reciprocity, mutually agreed and sustainable, and therefore reliable for businesses. [23] Market access – The agreement contains certain specific rules for cross-border financial services between the UK and the EU. However, it does not allow broad market access under conditions such as general equivalence or `mutual alignment`, as was discussed during the negotiations. In this respect, the agreement does not exceed the rules of the Comprehensive Economic and Trade Agreement (“CETA”) between the EU and Canada. In addition, the agreement does not provide for a “most-favoured-nation clause” in the area of financial services that would allow the EU and the UK to benefit from more favourable treatment granted by the UK and the EU respectively in their future financial services agreements with other third countries. General Rules – According to the Agreement, the UK and the EU are bound by certain general rules for financial services: the number of service providers, the sum of transactions or service assets and the total number of service transactions or the quantity of services cannot be limited (Article SERVIN.
2.2, 3.1). In principle, a local presence is not required for service providers as a condition of cross-border supply (Article SERVIN.3.3), but both parties have reserved the right to take or maintain measures that provide for the need for a local presence of financial service providers (ANNEX SERVIN.2). Service providers and service providers are no less disadvantaged than national providers or providers from third countries (Articles SERVIN.2.2, 2.4., 3.4, 3.5). Financial services newly located in the territory of a Party must be authorized if they are authorized under the national provisions of that Party (Article SERVIN.5.42). Access to payment and clearing systems operated by public sector bodies is granted (Article SERVIN.5.44). During the final negotiations on the political declaration, the Times published an article on the UK`s access to the single market for financial services. The newspaper seems to have been informed that British negotiators had received a commitment for British financial services to gain particularly favourable access to the EU`s single market[1]. .