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Regulating market access for financial services

Watch Prof. Christa Tobler discuss the possible approaches for regulating market access for financial services.
The modern EU legislation in the field of financial services is quite complex. I am sure that you can easily imagine that this state of things poses challenges when it comes to concluding an agreement in this field. In fact, such an enterprise requires much more than agreeing on a few internal market principles such as a prohibition of discrimination on grounds of nationality. Also, it concerns not only rules about market access as such but also issues of supervision.
In that situation and from the perspective of Switzerland and its financial services industry, the fundamental question is whether EU/EEA market access can only be had for the price of taking over the Union’s harmonised law or whether a different less intrusive approach is also conceivable. First, briefly about harmonisation. The EU tends to see Swiss participation in the internal market as an association of a third country to the EU system. Increasingly, the Union has taken the view that such association is open only if the third country is willing to follow the EU rules. And that usually means incorporating the EU rules into the agreement.
Now, in the field of financial services where the Union has adopted a very large amount of technical legislation, that is a challenge, even just in view of the sheer amount of the rules. But the third country and its financial industry might be hesitant also for other reasons. For example, Switzerland has its own well-developed financial services legislation, which on certain points is different from what the EU has decided for the internal market and which it wishes to keep. It is for that reason that the financial industry in Switzerland puts the emphasis on equivalence.
As a medium term goal, the Swiss Banking Association mentions ‘secure market access to the European domestic market’ described as the ‘development of a recognition process for the equivalence of Swiss financial market legislation by the EU, which is foreseen by the EU and which would be required / sensible for cross-border market access.’ An approach based on equivalence is very different from taking over harmonisation. Instead of being based on common rules, it entails that the Union accepts that the Swiss legislation is of equal value as the Union legislation, meaning that actual differences in the legislation are no reason for limiting market access. So how is equivalence being achieved?
The safest option for a third country is one where the principle of equivalence is anchored in an agreement. Alternatively, the principle may be stated unilaterally by the Union in its legislation. For example, in the field of banking the European Commission in November 2015 adopted five equivalence decisions for the regulatory regimes of Canada, Switzerland, South Africa, Mexico, and South Korea on certain aspects of their rules on the derivatives market. Through this decision, the equivalence of these countries’ regulatory regimes for the so-called CCPs is recognised by the EU.
The Commission’s press release explains that CCPs are bodies that sit in the middle of derivatives contracts becoming the buyer to every seller and the seller to every buyer and that the G20 has encouraged the use of CCPs since the financial crisis to reduce risks in derivatives trading. In the framework of EU law, an assessment for equivalence is undertaken by the European Commission.
If a CCP from a third country seeks recognition from the European Securities and Markets Authority, ESMA, which is an EU agency in the financial services field, the authority in the third country concerned must be able to show that its rules achieve the same objectives as in the EU, in this case, a robust CCP framework promoting financial stability through a reduction in systemic risk. The Commission adds specifically, ‘it does not mean that identical rules need to be in place in that country’. The assessment is undertaken in cooperation with the regulators in the country concerned. If a determination of equivalence is made, it is given the fact through a legally binding implementing act.
Similar decisions are also possible in the field of insurance. We have provided an example concerning the solvency and prudential regime for insurance and reinsurance undertakings in Switzerland in the related links on this step. In our next step, we invite you to discuss from the political perspectives of the EU and of Switzerland whether a new financial services agreement between them must be based fully on EU law or whether an alternative approach should be aimed at.

The modern financial services law is very complex.

In the European Union (EU), the financial services industry is highly regulated through complex, technical rules. This raises the question of whether a new Swiss-EU agreement in this field would have to take over this legislation or whether an approach based on equivalence might also be conceivable.

You may also read the texts on the websites that you find under ‘see also’ for further information.

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