The Equivalence Regime and What it Means for Countries outside the EU
Authored by: Rick Bonhof, Sr. Consultant, Business and Management Consultancy, Synechron
What is the equivalence regime and what consideration will EU firms need to make because of it?
The equivalence regime allows third country financial institutions to offer their services in the EU without having to obtain a EU license. The equivalence regime effectively removes additional regulatory hurdles for third countries since the local regulatory framework applicable on the entity are considered to have equivalent requirements as in those applicable in the EU.
How does the equivalence regime impact interactions with third country entities?
Third country entities like the US, Japan, Singapore, Hong Kong and others can offer their services in a number of ways:
- by setting up an EU based legal entity with an EU license.
- by using a branch which is appropriately regulated under EU laws - i.e. Major US banks offer services in the EU through their UK branch; which is regulated by the FCA, PRA or Bank of England as appropriate.
- by offering services directly under their third country legal entity when equivalence has been declared
Though equivalence processes are embedded in MiFID 2, AIFMD and Solvency II, it can be difficult to consider politics and technology. How is ‘equivalence’ determined?
There is an element of politics involved in process of declaring a regulatory regime equivalent. Usually, equivalence is declared on reciprocal basis ensuring fair competition between entities from the two countries involved - or area in case of EU law.