The Association for Financial Markets in Europe has urged the EU to improve transparency and certainty in its equivalence regime with third countries to support connections with international markets and minimize fragmentation.
In a Jan. 14 paper, the AFME called on the EU to establish a transparent framework to provide certainty to market participants and preserve choice for investors.
The AFME, an industry lobby group that represents banks, brokers, law firms, investors and other market participants, unveiled a set of principles it said should underpin the EU's equivalence framework which it described as one of the most widely used cross-border financial regimes.
It called for a focus on fair competition in capital markets, investor protection and reducing barriers to cross-border business in the EU's equivalence regime.
When determining equivalence, the AFME said decisions should be proportionate and risk-sensitive, based on sound regulatory and supervisory arrangements. It added that decisions should be made in a timely manner, providing certainty and stability for market participants. The AFME said its paper was intended to address the EU's general approach to equivalence rather than the bloc's specific relationship with the U.K. after Brexit. The EU and the U.K. are yet to settle on a deal on the equivalence of their regulatory and supervisory regimes after the U.K. leaves the EU.
The association cited a "lack of communication" over the EU's decision to end equivalence for trading in Swiss shares in June 2019 as an example of where market participants faced uncertainty and risks.
Oliver Moullin, managing director at the association, said improving the framework "will support continued connectivity with international financial markets, minimize unnecessary fragmentation and maximize benefits for consumers of financial services across Europe. It will also allow the EU to effectively manage risks to financial stability, market integrity and investor protection."
The AFME also said in its report that it was important to analyze the benefits of an equivalence system as well as the impact of not having one on market participants and third-country providers and to balance any such impact.