Annexes to COM(2019)349 - Equivalence in the area of financial services - Main contents
Please note
This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2019)349 - Equivalence in the area of financial services. |
|---|---|
| document | COM(2019)349  |
| date | July 29, 2019 |
6.Monitoring and reviews of equivalence
Monitoring of equivalence decisions
A constant evolution of the regulatory and supervisory frameworks of leading financial centres and a dynamic market context imply that facts and assumptions on which some equivalence decisions have initially been taken may no longer be correct. Reliance on an outdated equivalence finding may bring new risks to the EU financial system.
Adequate equivalence monitoring needs to be assured by the Commission and the European Supervisory Authorities, acting in cooperation in accordance with their respective mandates. As reflected in the recent amendments to the equivalence regimes, the European Supervisory Authorities are well placed to engage and take the lead in specific monitoring tasks (following regulatory developments in a third country and its supervisory record, cooperation between supervisors in the EU and in a third country). For instance, the European Insurance and Occupational Pensions Authority conducted an on-site assessment of the situation in Bermuda, to monitor the implementation of the equivalence decision on insurance. Effective monitoring is possible only if good cooperation arragenments have been put in place between the Commission and the European Supervisory Authorities on the one side, and third-country authorities and supervisors on the other side. 20 Regulatory dialogues and forums with third countries are key for this purpose.
Equivalence monitoring consists of technical work examining the effects of an existing equivalence decision. Among other things, the Commission needs to keep under scrutiny whether an equivalence decision:
·continues to fulfil the EU objectives for which it was taken, which might depend for instance on changes in the regulatory framework of the third country;
·may raise new risks for financial stability, market integrity or investor protection and whether the activities of the firms or services covered by the decision respect the integrity of the EU internal market for financial services and preserve the level playing field in the EU;
·is impacted, where relevant, by the listing of the third country on the EU lists of non-cooperative tax jurisdictions 21 or of high-risk third countries presenting strategic deficiencies in their Anti-Money Laundering / Counter Financing of Terrorism regimes. 22
Monitoring contributes to understanding market and regulatory developments, assessing how third-country or EU financial institutions use an equivalence decision, and examining third-country supervisory practices. As a result, monitoring results would feed into a potential review of an equivalence decision. Specifically, a review can be undertaken in response to a significant finding stemming from the monitoring exercise. In that respect, effective monitoring allows potentially serious divergences to be indentified early and addressed accordingly, thereby minimising the risk of possible withdrawal later on. It should thus be regarded as a helpful means to ensure stability in equivalence arrangements and not as a source of uncertainty in those arrangements.
Reviews of equivalence decisions
An equivalence review involves a more structured and more strictly defined analysis. Such review relates to the relevant equivalence empowerment for the Commission in EU law or to a specific mandate for the Commission in an equivalence decision itself. In essence, a review examines all equivalence criteria and specific conditions contained in an equivalence decision, so as to ascertain that they continue to be respected (e.g. after the EU framework in a given sector has changed). It may be pursued on an ad-hoc or regular basis and may result in the Commission unilaterally withdrawing equivalence. It involves careful dialogue with the third-country authorities concerned which may still demonstrate that their regime delivers the outcomes as set out in the corresponding EU framework.
In the coming months, the Commission will work closely with the European Supervisory Authorities in order to step up cooperation on monitoring, in line with their respective mandates and the changes implied by the entry into force of the recent legislative improvements mentioned above.
7.Outline of priorities for 2019-2020
The Commission is working on equivalence assessments or decision proposals in a number of areas. Most advanced in that respect is the current work in the areas of statutory audit (adequacy) 23 and benchmarks. In that last area, a number of other third-country jurisdictions are preparing or adopting new regulatory frameworks for the administration and use of benchmarks, sometimes largely inspired by the EU Benchmarks Regulation.
Furthermore, there are a number of priorities on which monitoring should be focused:
·Changes in the EU legislative framework: areas in which the EU legislative framework on which previous equivalence assessments were based has been reviewed – this results in repealing existing decisions where the third-country framework no longer delivers the outcomes as set out in the new EU framework 24 ;
·High-impact areas or third countries: areas and countries covered by equivalence decisions which have a high impact on the EU in terms of financial stability, market activity and investor protection 25 ;
·Impending review or expiry of an equivalence decision: areas where equivalence decisions include a review deadline or where a time limit is approaching 26 ;
·Market developments: market segments which are undergoing dynamic or structural changes, or evolution in the use of an equivalence decision by EU financial market participants 27 .
In the coming months, further equivalence or monitoring areas may require specific action from the Commission, in cooperation, where appropriate, with the relevant European Supervisory Authorities.
8.Conclusion
The EU equivalence policy emerges today as a flexible regulatory instrument capable of building bridges across jurisdictional fault-lines. The EU equivalence approach, including both its initial assessment mechanisms and its ex-post monitoring, will continue to deliver genuine added value to the regulatory and supervisory architecture and to safe and efficient financial markets both in the EU and globally.
In the context of bilateral relationships, equivalence will bring tangible benefits for the EU and third-country jurisdictions in terms of narrowing cross-border divergences and incompatibilities and will contribute to reducing global market fragmentation. Equivalence decisions will best do so by ensuring strong standards of financial stability, market integrity and investor protection, supporting and enhancing regulatory and supervisory cooperation between the EU and third-country authorities in a meaningful way, while at the same time maintaining open and globally integrated EU financial markets.
(1)
17 pieces of EU legislation contain "third-country provisions" empowering the Commission to decide on the equivalence of foreign rules and supervision for EU regulatory purposes. EU legislation has created various types of equivalence, with differences in the EU decision-making process or in the effects of a decision (e.g. “audit adequacy”, “audit equivalence”, etc.). Those "third-country provisions" are listed in: https://ec.europa.eu/info/sites/info/files/overview-table-equivalence-decisions_en.pdf .
(2)
Not all of those provisions have been used until now.
(3)
COM(2018)0646. Agreement of 16 April 2019 between Parliament and Council on the proposal on European Supervisory Authorities and financial markets [2017/0230(COD)].
(4)
COM(2017)0331. Agreement of 18 April 2019 between Parliament and Council of 18 April 2019 on the Authorisation of CCPs and recognition of third-country CCPs [2017/0136(COD)].
(5)
COM(2017)0791. Agreement of 16 April 2019 between Parliament and Council on the Prudential supervision of investment firms (Directive) [2017/0358(COD)].
(6)
Commission Staff Working Document of February 2017 on EU equivalence decisions in financial services policy: an assessment. (SWD(2017) 102 final).
(7)
See also the 2017 Staff Working Document on equivalence, p. 10.
(8)
See the Report of 18 July 2018 on relationships between the EU and third countries concerning financial services regulation and supervision (2017/2253(INI)), rapporteur B. Hayes, Committee on Economic and Monetary Affairs, European Parliament.
(9)
Regulation (EU) No 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Regulation (EU) No 648/2012 (OJ L 173, 12.6.2014, p. 84).
(10)
COM(2018)0355. Agreement of 26 March 2019 between Parliament and Council on Low carbon benchmarks and positive carbon impact benchmarks [2018/0180(COD)].
(11)
Commission Implementing Decision (EU) No 2019/684 of 25 April 2019, OJ L 115, 2.5.2019, p. 11–15.
(12)
Commission Implementing Decision (EU) No 2019/536 of 29 March 2019, OJ L 92, 1.4.2019, p. 3–8.
(13)
Commission Implementing Decision (EU) No 2019/541 of 1 April 2019, OJ L 93, 2.4.2019, p. 18–24.
(14)
Two Commission Implementing Decisions adopted together with this Communication (Commission Implementing Decision C(2019)5476 and Commission Implementing Decision C(2019)5477). Drafts were published for public feedback between 19 March 2019 and 16 April 2019.
(15)
Commission Implementing Decision (EU) 2018/2030 of 19 December 2018, OJ L 325, 20.12.2018, p. 47–49 with amendments; Commission Implementing Decision (EU) 2018/2031 of 19 December 2018
OJ L 325, 20.12.2018, p. 50–52 with amendments.
(16)
Draft published for public feedback between 4 June 2019 and 2 July 2019 - Ares(2019)3590761.
(17)
Commission Implementing Decision (EU) No 2018/2047 of 20 December 2018, OJ L 327, 21.12.2018, p. 77–83.
(18)
OJ L 146, 31.5.2013, p. 1–33.
(19)
Nine Commission Implementing Decisions adopted together with this Communication, including four renewals: Hong-Kong (Commission Implementing Decision C(2019)5808), Japan (Commission Implementing Decision C(2019)5807), Mexico (Commission Implementing Decision C(2019)5804), the United States (Commission Implementing Decision C(2019)5803), and five repeals: Argentina (Commission Implementing Decision C(2019)5806), Australia (Commission Implementing Decision C(2019)5800), Brazil (Commission Implementing Decision C(2019)5805), Canada (Commission Implementing Decision C(2019)5801), Singapore (Commission Implementing Decision C(2019)5802). Drafts were published for public feedback between 11 June 2019 and 9 July 2019.
(20)
Lack of timely cooperation by third-country authorities in sharing information on legislative developments, or supervisory practice or implementation policies could be a ground for starting an ad-hoc review of an equivalence decision.
(21)
EU list of noncooperative jurisdictions for tax purposes, as included in the Council Conclusions of 5 December 2017, with subsequent amendments.
(22)
Directive (EU) No 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (OJ L 141, 5.6.2015, p. 73–117)
(23)
Pursuant to Directive (EC) No 2006/43 of the European Parliament and of the Council of 17 May 2006 on statutory audits of annual accounts and consolidated accounts (OJ L 157, 9.6.2006, p. 87–107)
(24)
For example, see the renewal or repealing equivalence decisions after the entry into application of the new EU Credit Rating Agencies framework.
(25)
For example, see the equivalence decisions on central counterparties (Art. 25 of Regulation (EU) No 648/2012), where the European Securities and Markets Authority needs to monitor regulatory and supervisory developments in third countries.
(26)
For example, under the Regulation (EU) No 575/2013, the first equivalence decision for a number of jurisdictions was adopted in December 2014, envisaging that the list of countries would be reviewed every 5 years. Since then, a number of decisions added countries to the list of equivalent jurisdictions. The work will need to continue, including on monitoring the third countries on the list.
(27)
For example, under Regulation (EU) No 600/2014 – Art. 23 and 28 (trading obligation for shares and derivatives), the dynamic situation in the segment of trading venues justifies a continuous monitoring of the developments relevant for EU issuers and investors using those infrastructures which have been deemed as equivalent by the EU. Monitoring in relation to derivatives should also assess whether EU venues are afforded equivalent treatment by the third countries.