The Future of Equivalence in the EU Financial Sector

The future of equivalence in the EU financial sector does not look all that bright. Granting third-country entities access to the EU financial markets is increasingly less about reliance on equivalent third-country rules and equivalent third-country supervision. Considerations other than equivalence are increasingly given more relative weight, either explicitly or implicitly, in particular (i) EU financial stability risks, (ii) EU market integrity, (iii) EU retail investor protection, (iv) preserving or regaining EU autonomy in an increasingly complex world (e.g., Brexit and the economic rise of China), (v) protecting EU entities against competitors from third countries, (vi) trying to conquer market share in a lucrative business (e.g., derivatives clearing), and (vii) other EU policy considerations. These considerations are gaining ground not merely in relation to the question of whether an equivalence framework should even be in place, and if so, whether equivalence decisions should indeed be taken, but also with regard to the regulatory and supervisory framework that the EU applies to (1) entities established in third countries for which the Commission has adopted equivalence decisions, and (2) third-country branches established in the EU. In view of this, the Territorial Approach and the Extra-Territorial Approach are clearly on the rise, in each case to the detriment of the Equivalence Approach. At the same time, loopholes in the execution of the Territorial Approach continue to exist at the national level, at least for the time being.