The FIA, Deutsches Aktieninstitut, AFME, EDMA, ICMA, Swiss Finance Council and ISDA (collectively, the "Associations") contended that imposing further conditions to the European Union ("EU") equivalence approach and making it more restrictive would be harmful to EU financial and non-financial counterparties and to EU venues.

In a letter to EU policymakers, the Associations underscored the importance of a robust equivalence framework, which is intended to "preserve the integrity of and access to EU capital markets, facilitating European financing and growth." According to the Associations, EU markets would become less attractive and conflict with the goal of improving their capacity to obtain external capital if market access to third country firms by EU issuers and investors is curtailed.

The Associations also stated that improvements to the equivalence regime would be weakened by "proposals to introduce an EU branch/subsidiary requirement for third country investment firms underwriting and dealing on own account" (which proposal is part of the IFR and IFD debate). The Associations said that limiting the ties between EU and non-EU entities will disadvantage EU entities. Further, the Associations are concerned that the proposed amendments to restrict the equivalence regime would lead to less competition for investment services and trading venues in the EU, and less provision of external capital for the European economy.

Where the regulatory choice is between "line-by-line" assessment and a more "outcomes-based" approach, the Associations clearly favor the latter, and oppose any changes in the equivalence regime that will remove the ability of third country firms to provide certain services, on a cross-border basis, to EU clients.

Commentary

Additional context is in order. In the EU there is no general regime for recognizing the equivalence of third country frameworks, but different arrangements across different pieces of legislation. The equivalence decisions, issued by the European Commission, are at the center of the European strategy for financial services. However, an equivalence decision may be: (1) changed or repealed, (2) granted for a limited period, or (3) applied just to specific products and entities of the third country. Article 47 of the Markets in Financial Services Regulation currently sets out the general framework for equivalence decision; the European Commission wants to review it and impose further conditions.

In its Proposals for Investment Firms Regulation and Directive, the Commission intends to establish a new prudential framework for authorized firms and also intends to tighten the requirements relating to equivalence decisions in relation to third country firms.

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