As Brexit talks continue in London between UK and EU negotiating teams, the UK government unilaterally issued Monday a set of equivalence decisions across several financial services areas for firms from EU and European Economic Area (EEA) states. The decisions come into effect on 1 January 2021.
Making the announcement to MPs in the UK Parliament's House of Commons, Chancellor of the Exchequer Rishi Sunak also set out finance initiatives for greening the economy.
In his statement, Sunak said, "In the absence of clarity from the EU, we're acting unilaterally [on equivalence] to provide certainty to firms both here and in Europe."
While the UK has set out its approach, it remains to be seen what the EU's position will be.
The government also published guidance on a detailed framework for its general approach to equivalence.
The Financial Conduct Authority (FCA) explained that equivalence "consists of a determination that the regulatory or supervisory regime of another jurisdiction is recognised as being equivalent to the corresponding UK regime". It allows UK authorities to rely on firms' compliance with equivalent rules or supervision in that jurisdiction. The FCA set out what the decisions mean for firms.
Equivalence is one of the UK's key mechanisms for managing cross-border financial services activity with the EU and beyond. It has become an important issue for UK financial services firms — without the recognition of the UK's access rights to Europe's market, UK regulators would have to make agreements with Europe on a state-by-state basis.
Citing partnership building with Switzerland, India, and Japan, Sunak said the UK was building "new, deeper financial services relationships with countries outside the European Union".
Mandatory climate reporting by 2025
Sunak also set out in his statement to MPs how the government intends "to mandate climate disclosures by large companies and financial institutions across our economy, by 2025".
He said that upcoming rules and regulation would "capture a significant portion of the economy", including listed commercial companies, UK-registered large private companies, banks, building societies, insurance companies, UK-authorised asset managers, life insurers, FCA-regulated pension schemes, and occupational pension schemes.
Martin Farrar, associate technical director–Management Accounting at the Association of International Certified Professional Accountants, welcomed the chancellor's mandatory requirement for large companies but said the 2025 timescale was disappointing. He said: "Time is of the essence if the world is to meet the UN's 2030 Sustainable Development Goals."
Farrar added: "It is also important to realise that investors and customers are demanding organisations step up their sustainability systems thinking and business reporting now.
"Organisations cannot wait. They should start now to understand the risks and opportunities and begin reporting the impact of climate risks, rather than wait to 2025.
"Accountants cannot wait either, as [they] have a vital role to play in achieving comprehensive climate risk reporting."
Michael Bloomberg, chair of the Task Force on Climate-Related Financial Disclosures and a previous New York City mayor, commended the UK for its leadership in this area in a tweet saying, "Clearer data will help us build greener economies."
In order for the UK to meet its 2050 net zero carbon target and other environmental objectives, the government plans to issue its first sovereign green bond in 2021 "subject to market conditions", Sunak also announced.
Further issuances could follow "to meet growing investor demand for these instruments", he said.
"To encourage UK pension funds to direct more of their half a trillion pounds of capital towards our economic recovery" he also made a commitment that the UK's first long-term asset fund be set up within a year.
Sunak also announced:
- A consultation on ensuring high standards of regulation for forms of privately issued currencies known as stablecoins.
- A task force to review UK listing requirements to encourage tech companies to list in London.
- That the Treasury and the Bank of England are "considering further if central banks can issue their own digital currencies, as a complement to cash".
Charlotte Crosswell, CEO of Innovate Finance, the industry body representing the global fintech community in the UK, said in a press statement: "The coronavirus pandemic is a stark reminder that the financial service sector cannot be complacent about the speed of digital adoption."
She added that she looked forward in the coming months to the independent strategic review of UK fintech, led by the chairman of payments company Network International and former Worldpay CEO Ron Kalifa, which was announced in July.
— Oliver Rowe (Oliver.Rowe@aicpa-cima.com) is an FM magazine senior editor.