What is 'equivalence'?
Equivalence is when the EU decide that a non-EU-member's rule are roughly equivalent to their own in a certain area. The main issues of equivalence has been granted by the EU : that the EU has granted European firms to continue using London's dominant clearing houses. This decision only lasts until July 2022 with the EU planning on a more significant review that could eventually force clearing houses to relocate to the EU bloc.
What's the worry with equivalence?
The concern is that the EU can unilaterally withdraw 'equivalence' at very short notice. The UK have repeatedly pressed for longer notice periods.
Is the fear justified?
Yes. In mid 2019 the EU withdrew equivalence covering market access to the Swiss Stock Exchange. See Bloomberg's report on that at the time. The granting of equivalence is politicised as the EU took action against the Swiss when talks about the Swiss relationship with the EU did not progress in the way the EU wanted. The EU have said that decisions on market access will not be subject to negotiations and that the EU will protect its own interests.
Which areas are still to be covered?
There are decisions still to be decided regarding derivatives, broader passes to portfolio management, investment advice, underwriting, and trade execution.
Which areas are not covered by equivalence?
Core banking activities like receiving deposits, investment services for retail clients, and cross border lending services are all not covered. So, if UK banks would like to continue those lines of business then they will probably need offices in the EU to do so. This is why some banking operations have shifted to Frankfurt, Paris and Dublin.
