In July 2019, the European Commission published a communication that outlines the EU equivalence policy in the area of financial services. The document sets out the European Union’s approach to assessing the regulatory frameworks of 'third' (non-EU) countries and monitoring the performance of the equivalence decisions.

Equivalence process

Under the equivalence process, the EU assesses a country’s regulation to determine if it can be deemed ‘equivalent’ with EU rules.  Once in place, equivalence allows the EU to rely on the other country’s rules and supervision in a specific area of financial services, based on the relevant EU regulation. It narrows cross-border divergences and incompatibilities and therefore helps reduce global market fragmentation.

Today, EU financial services law includes about 40 areas for equivalence decisions. The EU has so far adopted over 280 equivalence decisions for more than 30 countries.

Countries can express an interest in being assessed for EU equivalence in a specific area. However, there is no automatic right under EU financial regulation and the decision to grant equivalence remains with the EU, both for the adoption of an equivalence decision and any possible amendment or repeal. The Commission engages with countries that are being assessed and they contribute to each stage of the process through a robust dialogue. 

In the assessments, the Commission examines the outcomes of third-country rules, compared to the objectives set out in EU regulation. In doing so, the Commission applies proportionality in the assessment criteria and follows a risk-sensitive approach. This means it can sometimes be more demanding with countries whose markets are more risky or impactful. Monitoring third-country rules and supervision is also important because EU equivalence criteria need to be met on an ongoing basis.

Taking stock

In the communication, the Commission also takes stock of recent financial reform of equivalence rules, both in terms of legislative and practical improvements. These reforms were part of the reviews of the European market infrastructure regulation, of the European supervisory authorities and the investment firm review. Furthermore, the Commission outlines for the first time its priorities for equivalence assessments and decision monitoring for 2019-2020.

The EU equivalence policy is designed to ensure strong standards of financial stability, market integrity and investor protection. It supports and enhances regulatory and supervisory cooperation, while at the same time maintaining open and globally integrated EU financial markets.

With over 280 equivalence decisions benefitting over 30 countries, and with recent legislative improvements, the Commission expects its equivalence approach will continue to play an important role in strengthening cooperation and delivering safe and efficient global financial services.

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