Equivalence: Experimentalism and the Instrumentalization of Financial Market Infrastructures.

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Equivalence: Experimentalism and the Instrumentalization of Financial Market Infrastructures.

Author: Bartholomew Oram Student Number: 11725397 Supervisor: Prof. Jonathan Zeitlin Second Reader: Prof. Daniel Mügge June 2020

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Abstract

The 2008 financial crisis starkly highlighted the importance of cross-border financial markets in the global economy, and brought into focus the governance mechanisms deployed by financial regulators to supervise these markets and their participants. In the European Union, the use of equivalence assessments and determinations has become a key feature of the post-crisis reforms across a range of financial services reforms as a form of governance and cross-border regulatory cooperation in international financial markets. This thesis characterises equivalence assessments and determinations as an experimentalist governance approach to managing the regulatory interface for financial market access and cross-border supervision. The study then provides a detailed case-study analysis of the use of equivalence in practice for three of the EU’s most significant third-country partners across three different equivalence provisions: for the US regarding derivative trading venues, Switzerland for share trading venues, and the UK for Central Counterparties (CCPs). It finds that the Commission’s strong political will can, in the case of the US, work to provide some predictability to equivalence determinations and market access. However, political motivations in pursuit of other policy objectives can also can undermine the ability of regulators and market participants from critical third countries to rely on equivalence as a tool for sustainable market access and supervisory cooperation, particularly where the Commission utilises its discretionary power over equivalence to further broader political goals concerning the EU’s relationship with those countries. However, this finding does not rule out the possibility of equivalence being used as an experimentalist form of governance in the future, especially now that the UK will also have the opportunity to do so with its own external partners with the equivalence provisions it has inherited from the EU.

Key Words – Equivalence, European Union, Third Country, Experimentalist Governance, Financial Market Infrastructure

Cover Image: Mark Carney (left) with Valdis Dombrovskis (right). Source: Dombrovskis, V. 2020. Twitter. February 19. [Online]. Accessed April 1 2020. Available from: https://twitter.com/VDombrovskis/status/1230143404597796864

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Acknowledgements

Firstly, I wish to express my sincere gratitude for all those took the time to participate in interviews for this research, especially given the trying and unique circumstances. Each interview was of great value, and thoroughly enriched the content of this research.

Secondly, I am appreciative to all those who willingly peer-reviewed my drafting, consistently providing valuable and encouraging feedback, much to the benefit of the thesis.

Finally, I am very grateful to my supervisor, Professor Jonathan Zeitlin, who was able to help guide my initial thoughts into a focused piece of work and provided consistent academic and moral support throughout the research. I am likewise thankful to my second reader, Professor Daniel Mügge, for taking the time to review this thesis.

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List of Abbreviations

AFME Association for Financial Markets in Europe

ASIC Australian Securities and Investments Commission CCP Central Counterparty (also known as “clearing house”) CFTC Commodity Futures Trading Commission (USA)

CPMI Committee on Payments and Market Infrastructure CRR Capital Requirements Regulation (2013)

DTO Derivative Trading Obligation ECB European Central Bank

ECJ European Court of Justice

EMIR European Market Infrastructure Regulation (2012)

EMIR 2.2 Regulation amending European Market Infrastructure Regulation (2019)

ESA European Supervisory Authority

ESMA European Securities and Markets Authority

EU European Union

FCA Financial Conduct Authority (UK) FMI Financial Market Infrastructure

FSAP Financial Sector Assessment Program (conducted by the IMF) FSB Financial Stability Board

IMF International Monetary Fund

IOSCO International Organization of Securities Commissions IRSG International Regulatory Strategy Group

MEP Member of European Parliament

MiFIR Markets in Financial Instruments Regulation (2014) MoU Memorandum of Understanding

MTF Multilateral Trading Facility OTC Over-The-Counter (Derivative) OTF Organised Trading Facility

SEC U.S. Securities and Exchange Commission

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STO Share Trading Obligation

TTIP Transatlantic Trade and Investment Partnership

US United States

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1. Introduction

“Equivalence is one of the main tools to engage with third countries in financial services. It’s mutually beneficial because it enables us to have a robust cooperation with our partners and

to open up our markets to non-EU market players” – Valdis Dombrovskis (European Commission, 2019b).

Equivalence: what was once a “backwater” in discussions of European political economy has, in recent years, become a “lightning rod” for understanding the future of EU-third country (i.e. non-EU) relations (Moloney, 2018b: 100). Indeed, Quaglia (2015: 168) has argued that equivalence provisions in EU post-crisis financial regulation form the “cornerstone of the new regulatory approach” being taken by the EU towards third countries.

How did equivalence in EU financial regulation rise to such prominence? The 2008 financial crisis clearly – and painfully - underlined not just the interconnectedness of global financial markets, but also the importance of effective international regulatory cooperation over these cross-border financial flows (De Vries et al., 2017). Capital markets are especially interconnected worldwide compared to, say, deposit-taking activities. Quaglia emphasises that OTC derivative trading and clearing in particular is “truly a global business” (2015: 179), whilst a former Chairman of the US Commodity Futures Trading Commission (CFTC) has remarked that in derivative markets “risk knows no geographic borders” (Gensler, 2013). Global derivative markets in particular have been identified as responsible as a causal trigger of the international recession (Lindenfeld, 2015: 1; Chitale, 2008: 21). The inherent interconnectedness of such markets thus means that the quality of supervision in overseas financial centres can have systemic implications for global financial stability, and cooperation and coordination is therefore of critical importance (Jackson, 2015: 170; Lindenfeld, 2015: 129). Perhaps, therefore, it is not surprising to see that third-country access to home financial markets, and the regulatory cooperation this necessarily entails, has become an increasingly important facet of studies of international political economy (Jackson, 2015: 170). In fact, Ferran (2018: 20) notes that there is now “strong consensus that the efficient and effective regulation of the financial system depends on the close coordination of national systems and stronger cooperation between national supervisors”.

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The European Commission (also referred to as “the Commission”) has similarly emphasised that the financial crisis “showed in stark clarity that global and deeply interconnected” nature of international financial markets, and that a coherent and cooperative regulatory approach between different jurisdictions is necessary to best serve financial stability (European Commission, 2014a: 1). Moreover, the Commission has previously complained that too often international financial regimes do not allow for regulatory cooperation and deference (ibid.: 2). In particular, Michel Barnier took issue with the approach of the CFTC, believing the latter’s extra-territorial approach risked pushing regulators apart (Lindenfeld, 2015: 133). Recognising the need for greater cooperation between international regulators, whilst also the need to prevent overlapping or contradictory regulatory regimes, the G20 committed to defer to one another’s regulatory regimes “based on similar outcomes, in a non-discriminatory way” in the aftermath of the financial crisis (2013: 18). Similarly, in 2010, the G20 called for action “to ensure open capital markets and avoid financial protectionism” (Gravelle and Pagliari, 2018: 86). It is in this context that the EU’s post-crisis equivalence regimes for financial services have been developed and implemented. Of the 40 post-crisis financial reforms, no less than 15 include provisions that provide the Commission with the power to unilaterally determine the equivalence of third country jurisdictions (European Parliament, 2018: 3).

As highlighted in the opening quote from European Commissioner Valdis Dombrovskis, in principle equivalence is a means by which the EU is able to foster cross-border cooperation with third-country jurisdictions, as well as to enable market access or preferential treatment, based on deference to the regulation and supervision of the home jurisdiction. In practice, the use of equivalence typically involves the assessment by the Commission of a third-country jurisdiction’s regulatory and supervisory approach, in some cases supported by technical advice provided and published by the relevant European Supervisory Authorities (ESAs). The Commission’s own internal assessment of equivalence is not published (Interview E). Following such an assessment, a positive determination of equivalence by the Commission enables the EU to then defer to that third country in a specific area of regulation and supervision. In doing so, it also provides a means to support close coordination of national supervisors and market integration in globalised financial markets, the importance of which has become increasingly salient in the post-2008 crisis era. However, as noted by Hanif (2016:

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567), the application of equivalence in practice has posed difficulties in fulfilling its intended goal to defer to third country jurisdictions. For example, the British Bankers Association (2017: 1) notes that the process for assessing equivalence in practice is “complex, messy, and rarely fast”. The challenges posed by operationalising equivalence in practice will be analysed in more granular detail through specific case studies within this thesis.

2. Research problem

2.1. Objective

This thesis aims to assess the nature of governance of the European Union’s relations with “third countries” in financial markets. In particular, it seeks to evaluate the European Commission’s use of regulatory equivalence assessment as a basis for granting third country access to EU financial markets, utilising specific case studies. Whilst “equivalence” may have a rather ambiguous meaning (Nicolaïdis, 2017: 27), in this context it refers specifically to the mechanism which the EU uses to assess third-country jurisdictions, which in the case of a positive determination can be used to support supervisory coordination and market access. The analysis in this thesis is developed through a comparison of three equivalence provisions across three different third-country jurisdictions: (a) with respect to third country venues meeting the derivative trading obligation (DTO) under the Markets in Financial Instruments Regulation (MiFIR)1_{; with respect to third country trading venues meeting the EU’s share}

trading obligation (STO) under MiFIR; and (c) financial market access for central counterparties (CCPs) under the European Market Infrastructure Regulation (EMIR)2_{. The}

main goal of this thesis is to review how equivalence assessments and determinations have been used in practice in significant cases, and to test to what extent its use in practice represents an experimentalist form of governance.

2.2. Research question

The opening quote from Dombrovskis clearly and succinctly lays out two of key intended benefits of the EU being able to defer to third country jurisdictions: enabling ongoing

1_{Regulation (EU) No 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in}

financial instruments and amending Regulation (EU) No 648/2012.

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supervisory cooperation over critical international financial markets and allowing market access to third countries. The core research question is targeted to interrogate further how equivalence really enables this in practice – investigating how, and to what extent, the Commission’s use of equivalence really enables these benefits to accrue.

Research Question

How has the European Commission’s use of equivalence been used to underpin cross-border regulatory cooperation and market access regarding international financial markets?

The research question is relatively broad in scope but, for the purposes of this research, can be split up into sub-questions which help investigate the issue in more depth. Firstly, it is important to locate equivalence determinations in financial services, and the principles which underpin these assessments, within the broader existing literature on governance frameworks for cross-border regulation. Secondly, to establish the extent to which equivalence assessments and determinations can be understood as an experimentalist form of governance, both in principle and in practice. Thirdly, to focus in on the provisions relevant to the case studies, and see how these cases might inform our understanding of the use of equivalence across financial services. Fourthly, whether the use of equivalence has changed over the albeit relatively brief time it has been deployed under the legislation in the case studies. Finally, to understand the wider political implications of how equivalence has been operationalised and used in practice for cross border cooperation.

Sub-Questions

1. How can regulatory equivalence assessments be characterized in governance-theoretic terms?

2. To what extent do the principles underpinning equivalence in financial markets represent an experimentalist form of governance?

3. How has equivalence been used specifically under EMIR and MiFIR?

4. Has the nature of its use changed since the post-crisis equivalence provisions came into force, particularly in light of the 2017 and 2019 Commission documents? To the extent that such use has changed, how has this impacted its use as a governance tool for cross-border cooperation regarding international financial markets?

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5. What are the political implications of how equivalence has been used in practice? 2.3. Relevance

This thesis builds on a growing body of literature within international political economy and governance regarding third-country access to EU financial markets, an area which was described as frankly “limited” barely five years ago (Quaglia, 2015: 169). This limited area of research is an important gap to fill, given that “financial market regulation occupies a critical place in the fabric of global economic governance” (Bach and Newman, 2007: 837). In particular, there is an absence of literature that undertakes a detailed review of specific equivalence provisions in practice. In the realm of financial services, this research will be one of the first to apply an experimentalist framework to better understand equivalence as a governance mechanism in financial markets. Moreover, the UK’s imminent departure from the single market, and the very real possibility that it will do so without a deal in financial services, has sharpened the focus upon and scrutiny of the EU’s third country equivalence provisions in financial services specifically (Ferran, 2017; Lannoo, 2016; Moloney, 2017; Moloney, 2018b). It therefore appears to be a highly appropriate time to review the European Commission’s approach to third-countries’ provisions, and how they operate in practice: at this critical juncture, equivalence in financial services appears worthy of greater academic scrutiny than has so far been the case.

2.4. Reading Guide

Chapter Three discusses equivalence within the broader context of existing literature on regulatory cooperation and managing the regulatory interface between different jurisdictions. It also situates equivalence in governance-theoretic terms as an experimentalist approach to regulatory cooperation and market access. Chapter Four discusses the evolution of equivalence assessments in the EU’s rulebook, discussing significant recent developments and communications from the Commission. Chapter Five sets out the methodology and case selection which underpins the research in this thesis. Chapters Six discusses each of the case studies in turn: regarding US for derivative trading venues, regarding Switzerland for share trading venues, and regarding the UK for CCPs. Chapter Seven provides a discussion based on

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the evidence presented in the thesis. Chapter Eight provides a brief conclusion and identifies possible areas for future research.

3. Situating equivalence within the theoretical governance

landscape

Utilising existing literature on governance theory can help to locate and most accurately characterise the use of unilateral equivalence assessments and determinations in governance-theoretic terms. In international political economy and international relations, there are a range of governance modes which have been identified and discussed both within the EU and in its external relations with third countries. These include hierarchical, market-based, network-based and experimentalist modes of governance. Some modes are typically more top-down or vertical in nature (i.e. hierarchical), whilst others typically deploy more multi-level, peer-to-peer or horizonal form of governance (i.e. network-based or experimentalist). Whilst often discussed as alternative modes to one another, it is more accurate to understand them as existing on a spectrum, and specific governance mechanisms may draw on one or more features of different modes of governance.

When it comes to the regulatory interface between different regulatory regimes there are a range of specific governance mechanisms which can be deployed besides unilateral equivalence, including national treatment, harmonization and mutual recognition. This thesis argues that the Commission’s use of equivalence can – at least in principle - be understood as an experimentalist form of governance for regulatory cooperation in international financial markets. This proposition will be tested in practice using information from three different empirical case studies. The following section sets out in more detail how equivalence can be framed as a form of experimentalist governance, whilst also exploring three other prominent mechanisms of governance for international regulatory cooperation and market access for third-country firms, and how they can be characterised within existing modes of governance.

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3.1. Market and hierarchical governance in international financial markets: national treatment, mutual recognition and harmonization

Experimentalist governance is certainly not the only, or even the most dominant, form of governance in regulatory relations regarding international financial markets. It is therefore useful to note some alternatives to equivalence in the governance of international financial markets, and the theoretical mode of governance which appear to best fit their use in practice, namely: national treatment, harmonization, and mutual recognition. Moreover, it should also be noted that forms of governance may be more or less experimentalist in character. Contrary to sartorial precepts, Borges argues that it is in fact legitimate to consider and accommodate concepts to varying degrees utilising a conceptual “family resemblance” (2006: 35-9). In some cases, experimentalists forms of governance may therefore in fact bear a resemble to other forms of governance: Lavenex (2015) highlights how experimentalist forms of governance between two particularly unequal or asymmetric parties can actually result in unilateral – even hierarchical – policy transfer to the smaller of the two. Zeitlin (2015: 334) likewise warns that the unilateral extension of EU regulation to third countries can undermine the experimentalist nature of transnational governance in specific policy areas, particularly in instances where there is no feedback from rule implementation to rule revision, blocking an effective learning mechanism for the EU.

3.1.1. Market Governance: National Treatment

National treatment is the most basic approach to third-country access, and could be seen as a market-based governance approach to third-country market access and regulatory cooperation – insofar as proactive cooperation between international regulators exists under this mode. Whilst being a mode of governance which is internally hierarchical, it applies a market logic to the access of foreign firms. Fundamentally, national treatment treats incoming firms the same as those established in the host jurisdiction and subjects them to the same rules and level of regulation by supervisory institutions in the host jurisdiction, which can help to maintain a level playing field and reduce regulatory risk (i.e. the risk that the regulation in the home country is insufficient or inadequate) (Moloney, 2018: 120). Indeed, Moloney (ibid.) highlights that US financial regulators have, with limited exceptions, typically preferred national treatment to substituted compliance or mutual recognition in

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their approach to third-country access and regulatory cooperation. However, despite providing a level playing field in theory, Jackson (2015: 176) has argued that such a model has advantaged US firms in practice, with de facto protectionist rules “fending off foreign competition”. National treatment may seek to be non-discriminatory towards foreign firms in the rules that apply, but it does “little or nothing” to remove other technical barriers to trade (Correia de Brito, Kauffman and Pelkmans, 2016: 10). Such barriers include divergent – even conflicting – standards or regulatory requirements between the home and host jurisdictions, which can have significant cost implications for foreign firms seeking market access (ibid.: 21-3). Bach and Newman (2007: 837) and Nicolaïdis and Shaffer (2005: 268) also argue that the US Securities and Exchange Commission (SEC) has previously used the hegemonic market size and power of the US to act unilaterally in its approach to third country access, and even to export America’s securities regulations to other jurisdictions.

An obligation for national treatment of foreign financial services firms is a “fundamental and relatively uncontroversial” provision in many international trade agreements (Lang and Conyers, 2014: 23). Indeed, it is one of the key principles and specific commitments made in the General Agreement on Trade in Services (GATS) with respect to financial services (Gkoutzinis, 2005). However, national treatment does little in the way of meeting the G20 commitment for deference to one another’s jurisdiction among international regulators. Indeed, relying on national treatment can “destroy reciprocity” where rules and practices are different in different jurisdictions (ibid.: 901). Indeed, the requirement for all non-US trading venues to register with the CFTC in order to serve US clients has previously been described as an explicit “extraterritorial land grab” (Gravelle and Pagliari, 2018: 100). In fact, one interviewee simply described national treatment as an “anti-competition and nationalist approach to regulation” (Interview E). Unsurprisingly, then, market participants in financial markets have also typically lobbied in favour of deference and mutual recognition rather than being subject to national treatment (Gravelle and Pagliari, 2018: 87). As noted by Gkoutzinis (2005: 901), if structural barriers to market access and extraterritoriality are to be removed in reality then ultimately there must be some degree of regulatory cooperation, mutual recognition or harmonization of rules between jurisdictions.

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Finally, Schmidt (2007: 677) notes that national treatment leaves politicians “totally free to act”, and emphasises that the value which politicians and regulators place on the ability to utilise discretion and achieve diversity on a national level should not be underestimated. However, it is also worth highlighting that other mechanisms, including both mutual recognition and unilateral equivalence determinations, can also facilitate discretion and diversity to appropriately accommodate for local contexts. Therefore, it is important to note that national policy autonomy is not necessarily unique to national treatment but can also apply to other mechanisms for third country market access as well.

3.1.2. Hierarchical Governance: Harmonization

Hierarchical forms of governance tend to have a stricter division of tasks of a command-and-control nature whereby governance is centralised through laws and regulations (Zielonka, 2007: 190-1). Typically, hierarchical forms of governance are thus those where policies are imposed from above in a complete, prescriptive and binding manner. Harmonization, which by nature “involves a systematic effort to eliminate substantive differences” between the rulebooks of jurisdictions, can therefore be characterised as a hierarchical form of international regulatory cooperation (Verdier, 2011: 63).

Naturally, there are coordination problems when trying to impose harmonized rules between jurisdictions – unsurprisingly, the EU and US have historically sought to align the other with their own approach as a means of increasing regulatory coherence (Shaffer, 2016: 9). Indeed, much of the academic discussion and discourse on governance of financial markets within the EU are framed in terms of ever greater harmonization through the single rulebook (Moloney, 2018b: 133). Verdier (2011: 80) likewise notes that financial regulation within the single market has increasingly relied upon detailed rules and maximum harmonization. Stefaan de Rynck, a senior adviser to Michel Barnier at the Commission, has also stated that in the post-crisis context the EU has “moved away from mutual recognition of national standards to a centralised approach with a single European Union rule book with common enforcement structures” (quoted by Tarrant et al., 2019: 4).

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However, attempting to achieve harmonization between the rulebooks of different jurisdictions – such as the EU and a third country – has been described as “practically unachievable” (Verdier, 2011: 64) and “unattainable” (Lindenfeld, 2015: 149). In particular, the differences in the regulation and supervision of EU and US financial markets, and their different approaches to adopting international standards, makes it very difficult for these jurisdictions to agree common rules (Pugliese, 2016: 285). Moreover, the fact that negotiation costs are so high means that, unlike experimentalist modes of governance, it is hard for harmonization to be part of a recursive framework.

As if this was not a great enough obstacle, harmonization also poses other difficulties and possible downsides. Almost by nature, there is a descent into uniformity of rules, and in cases where it becomes heavy and highly detailed it can simply become disproportionate (Pelkmans, 2012: 4). In turn, these uniform rules are by nature less responsive to local needs, and do not provide much scope for experimentalism or agile learning (Shaffer, 2016: 2), which can make them simply “inefficient in the myriad of economic, social and cultural environments” (Verdier, 2011: 65). Fundamentally, it could lead to some jurisdictions adopting rules which are not appropriate or well adapted for the own local economic context. In the words of CFTC chief J. Christopher Giancarlo, such a pursuit for conformity and a neglect for the different nature of different markets simply “cannot be right” (Giancarlo, 2019b). Of course, whilst there are significant challenges in agreeing harmonized rules, firms operating or providing services across multiple jurisdictions may in fact benefit from a reduction in compliance costs by only having to comply with one set of rules rather than multiple – possibly contradicting – sets of rules (Shaffer, 2016: 2).

Nonetheless, in light of the post-crisis reforms, the focus on international harmonization between jurisdictions – to the limited extent that this was actually successful pre-crisis – has weakened in favour of regimes of mutual recognition (Mügge, 2014: 323). Of course, whilst presented as alternatives by Schmidt (2007), there can actually be some overlap between harmonization and mutual recognition: for example, mutual recognition may be explicitly linked to harmonized international standards (Nicolaïdis and Shaffer, 2005: 273). Similarly, in theory unilateral equivalence determinations may only be granted if rules were exactly the same, although that would somewhat undermine the point of equivalence enabling different

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local contexts to meet common goals. In reality, the Commission has previously stated that whilst regulatory convergence is a desired outcome from equivalence determinations, such assessments in financial services are ultimately based on regulatory and supervisory outcomes, and do not require “word-for-word sameness of legal texts” (2017: 4). If this it to be taken at face value, then unilateral equivalence assessment therefore should not be viewed as an indirect attempt at harmonization.

3.1.3. Market Governance: Mutual Recognition

Nicolaïdis and Shaffer (2005: 269) have noted that mutual recognition and national treatment are often depicted as polar opposites, or “contrasting conceptual pillars”, in that one imposes home country sovereignty (mutual recognition) whilst the other imposes host country sovereignty (national treatment). Moreover, Nicolaïdis (2017: 17) claims that in the context of the single market mutual recognition is “the better and only alternative to harmonization and national treatment”. Under mutual recognition, two (or more) different jurisdictions recognise one another’s regime as a substitute for their own (Verdier, 2011: 57) without seeking to necessarily unify or harmonize the relevant regulations themselves. As with equivalence determinations, deference to home regulators is a fundamental part of mutual recognition, which implies a horizontal transfer of sovereignty – something which is not the case with national treatment or harmonization (Schmidt, 2007: 672). Like equivalence, mutual recognition is a mechanism that acknowledges that the standards in the home country are materially equivalent in outcome to those of the host. Given that, by its nature, mutual recognition does not seek to impose uniform regulatory rules, it has been characterised as a market approach to the governance of international regulatory relations, with Schmidt (2007: 667, 675) describing it as an important alternative to the hierarchical steering of harmonization.

The most recognisable form of mutual recognition in practice is within the EU itself, where it has been a fundamental principle of European integration and the European single market, stemming from the landmark Cassis de Dijon caselaw (Shaffer, 2016: 3; Schmidt, 2007: 679). Nicolaïdis (2017: 16) emphasises the importance of mutual recognition to the single market, stating that “the single market is the birthplace of mutual recognition in its legal and technical

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guise in the EU”. In terms of financial services, the existence of financial services passporting between member states within the single market can be seen as a form of mutual recognition. For Verdier, the notable success of mutual recognition within the EU (2011: 78) is based on the unique supranational institutions the Union has to enforce uniform standards across the bloc. In the context of the EU’s single market, Pelkmans (2012: 1) emphasises that mutual recognition therefore allows “deep market integration whilst respecting the diversity” of each member state. Pelkmans (ibid.: 9) also observes that the approach has itself evolved over time to become more focused on the objectives of regulations rather than seeking uniformity across technical rules within the single market. Such a framework represents a “managed” approach to mutual recognition, which is recursive over time, rather than “pure” mutual recognition which takes the form of a one-off discrete assessment and agreement.

There are also empirical examples of mutual recognition in practice in the realm of international financial services beyond the borders of the single market. Perhaps surprisingly given their preference for national treatment, the US actually has one of the most prominent mutual recognition arrangements in the area of financial markets – that of the one signed between the SEC and ASIC in 2008 – although the practical success of this agreement was somewhat shattered by the financial crisis (Moloney, 2018: 123-4). Nevertheless, it is notable that the agreement detailed features which provided for a recursive framework based on close and continuous coordination and communication between regulators. For example, the framework included periodic equivalence assessments at least once every five years, thereby incorporating features more closely associated with network-based or experimentalist governance (Verdier, 2011: 86).

Clearly then, mutual recognition does share some key similarities to equivalence. Most notably, and unlike national treatment, it is a system based on deference to home regulators (Moloney, 2018: 120). It allows for the pursuit of common objectives without requiring the full harmonization of legislation and avoids centralization or identical rules (Pelkmans, 2007: 702-3). When implemented between different sovereign jurisdictions, mutual recognition is also typically underpinned by detailed cooperation arrangements: in fact, it actively facilitates cooperation between states (Verdier, 2011: 65). It has been argued that mutual recognition also represents a form of governance which utilises market logics, and that it “unleashes a

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regulatory dynamic where the most competitive products and services prevail” (Lavenex and Schimmelfennig, 2009: 799). Pelkmans (2007: 708) also notes that mutual recognition of standards can “boost economic welfare by promoting competition”.

Yet whilst mutual recognition and unilateral equivalence determination are comparable in some respects, the Commission has repeatedly emphasised the unilateral and discretionary nature of equivalence (2017; 2019) – meaning there is nothing necessarily “mutual” about the decision, although the Commission will typically look for reciprocity for EU-based firms. In practice, this approach means equivalence decisions can be taken away as easily as they are awarded, in some cases with as little as 30 days’ notice, with no right of review or appeals body to appeal to (Financial Times, 2018b). Indeed, in response to suggestions for a regime with more mutual features between the UK and EU, Michel Barnier (2018) tweeted that such suggestions were “misleading” with a reminder that the “EU may grant and withdraw equivalence in some financial services autonomously”. Such an approach has been met with some concern, with Nicolaïdis (2017: 40) arguing that it “ought to be much harder” to withdraw such determinations than to grant them, especially for “obsessively EU-law abiding” countries such as Switzerland. Moreover, mutual recognition is typically an “all or nothing approach” (Lindenfeld, 2015: 146), which can cover a full spectrum of financial services, whereas equivalence is implemented on a much more specific basis in financial services.

3.2. Experimentalist Governance: Equivalence

Experimentalist governance refers to a recursive process of goal setting and revision, which allows for learning from comparative review of implementation in different local contexts (Sabel and Zeitlin, 2012). In so doing, it has been argued that experimentalist governance allows for an innovative and effective response to the diversity in practice by enabling common goals to be adapted to the local context. Such a form of governance is generally argued to be more flexible, less prescriptive and less hierarchical than traditional modes of governances (Sabel and Zeitlin, 2012; De Burca, Keohane and Sabel, 2014). Within the EU, such modes of governance can facilitate diversity between member states, and it could be argued that in this light experimentalist governance has flourished in the EU given the diversity of EU member states. This propensity for experimentalism within the EU has been

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demonstrated in the way such governance has been analysed and explored in a wide range of areas in EU regulation. Such policy domains include, but are not limited to, energy, justice and home affairs, food safety, chemical regulation and data privacy (Zeitlin, 2016: 1074). It is also important to note that experimentalist governance has already been convincingly applied to the internal governance of EU financial markets within the single market, providing an alternative way of viewing what has been typically been seen as a “trajectory towards centralised and hierarchical” governance (Zeitlin, 2016: 4). There has been a particular focus on the role and operationalisation of the ESAs and the Single Supervisory Mechanism (SSM) in practice, with emphasis on their experimentalist features in a polyarchic ecosystem, and their ability to provide for a recursive, iterative method of governance in which front-line national supervisors play a crucial role within the post-crisis regulatory framework (Zeitlin, 2016; Moloney, 2016). This work is important in shining a light on how European institutions in the realm of financial services deploy experimentalist governance, even where they do so under a “hierarchical veneer” (Zeitlin, 2016: 10). Such research also shows how a focused analysis on specific institutions and governance mechanisms can yield new and sometimes surprising results. Conducting further research into equivalence in practice can therefore hopefully lift the lid and explore how assessments and determinations are carried out in reality.

Of course, it should also be noted that the use of equivalence assessments and determinations in financial services, whilst rare, is not totally unique to the EU’s rulebook: for example, other jurisdictions also make use of similar approaches of unilateral equivalence assessments and determinations with respect to financial market access and supervision – Malaysia and Australia being two useful examples in this regard (Moloney, 2018b: 124).

3.2.1. Application to third country equivalence determination in financial markets

This thesis will assess equivalence as a form of governance for international regulatory cooperation – one which, in theory, allows for diversity among participating parties and provides scope for recursive adaptation and revision based on practical experience. As will now be explored, there is already some existing literature which argues that equivalence assessments can generally be understood as an experimentalist approach to regulatory

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cooperation. In particular, Zeitlin (2015: 338) has previously argued that the EU’s equivalence assessments and processes may “constitute the core of an emergent transnational experimentalist regime”.

The Commission (2013: 2) has previously noted that it is simply “inevitable” that regulatory differences will occur between jurisdictions based on differing markets and legislative frameworks. Accordingly, equivalence assessments and determinations are used to facilitate market access or preferential treatment where the EU determines “that the regulatory or supervisory regime of a third country is equivalent” to the respective EU regime, whilst allowing for adaptation for local contexts (Commission, 2019: 2). In principle, there appears to be a theoretical matchup between equivalence and experimentalist governance: equivalence is fundamentally designed to be (1) an outcomes-based process which is (2) intended to accommodate heterogeneity between financial regulatory systems provided that (3) it results in equivalence outcomes in their local context. The focus on outcomes is important: Nicolaïdis (2017: 27) reminds us that equivalence is not simply about like-for-like sameness in regulatory text, but “achieving the same function”.

With this framing, equivalence could be outlined as an innovative approach to governing the regulatory interface between the EU and third country partners. Indeed, the experimentalist features of the EU’s use of unilateral equivalence have previously been highlighted by Posner (2015). This thesis benefits from the fact that the Commission has since taken a significant number of decisions and published explicit communications on equivalence in financial services, helping to shine a greater light on its use in practice. A full table of equivalence determinations taken by the Commission with respect to financial services is available as Annex 3.

This thesis deploys an experimentalist framework to analyse how the equivalence mechanism meets the criteria for experimentalist governance along the following lines:

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a) allows for the pursuit of common objectives through differentiated local means The principle of an agreed common framework and common goals is one of the fundamental criteria of Sabel and Zeitlin’s (2012) experimentalist governance, whereby local actors are free to adopt necessary measures to implement common aims. The Commission has previously stated in explicit terms that the relevant rules being assessed do not need to be identical, but need to achieve common outcomes (European Commission, 2017a: 4). It is not a line-by-line comparison of rulebooks (ibid.). In principle, such an approach should allow for local actors (i.e. regulatory bodies in the EU and a given third country) to pursue common regulatory objectives in a manner which is appropriate for the local conditions, without compromising their commitment to these shared goals.

b) provides for ongoing assessment and corrective action

Experimentalist governance requires a “recursive review” of the implementation of policy to achieve the common goals (Sabel and Zeitlin, 2012: 169). Similarly, equivalence determinations are typically associated with the establishment of ongoing supervisory cooperation and assessment – indeed, it is used as an explicit “trigger for establishing or upgrading supervisory cooperation” (European Commission, 2019a: 3). Moreover, the Commission has stated that their approach to equivalence is dynamic, noting that the EU “monitors and, where necessary, dynamically responds to external regulatory and supervisory developments” (European Commission, 2019a: 1). Hoekman and Sabel (2012: 11) likewise note how equivalence decisions can establish the basis for a form of regulatory cooperation which is inherently managed on an ongoing basis, rather than a determination simply being a one-off discrete decision. Indeed, the Commission’s equivalence decisions can be reviewed and withdrawn based on ongoing assessments in practice (Moloney, 2018b), with empirical evidence of this being the case where the Commission removed equivalence from five countries for lacking sufficient standards regarding credit rating agencies (Huertas and Schelling, 2019). Moreover, a positive equivalence determination often requires the establishment of supervisory relationships between home supervisors and EU authorities through the form of a Memorandum of Understanding (MoU), which typically can allow for enhanced cooperation, on-site inspections, and access to data. These robust supervisory

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relations also provide for ongoing assessment and horizontal coordination between the home and host supervisors.

3.2.2. Equivalence vs. Substituted Compliance

Notwithstanding a historical preference for national treatment of incoming firms, the US has also implemented a post-crisis deference framework in financial services which bears some similarities with the EU’s equivalence framework in some cases. In particular, the CFTC is able to make substituted compliance determinations for overseas jurisdictions in limited areas following an outcomes-based comparability assessment (Lindenfeld, 2015: 140-1). Like equivalence, such determinations are also underpinned by formal supervisory cooperation arrangement and are subject to regular review by the CFTC to ensure ongoing comparability (ibid.).

That said, there are some key differences to note. In particular, the US substituted compliance regime operates differently in terms of scope and application, exempting firms from extraterritorial rules that would otherwise apply to third-country firms entering US markets, with the US regulator not ceding any of its supervision or enforcement powers (Lindenfeld, 2015: 137; Interview B). Moreover, the substituted compliance regime is more flexible given that it is entirely in the gift of the regulator, compared to the legal implementing acts required for equivalence in the EU (Interview B). In particular, the CFTC can issue “no-action letters”, which allow for more limited determinations and market access, whereas the use of equivalence by the EU is more typically an “all or nothing” form of market access (Interviews B and C). This flexibility is also aided by the fact that the US regulators tend to be more willing than the EU to accept existing international standards as the basis for assessments of substituted compliance (Interview C). One interviewee also noted that in practice the CFTC questionnaire sent to other regulators for assessing substituted compliance was much less granular and prescriptive and more high level than the Commission’s own questionnaire for assessing equivalence (Interview E). Finally, under the EU regimes an equivalence determination may be essential for being granted market access in the first place, whilst any firm whose jurisdiction does not receive a substituted compliance decision can choose to be fully regulated by the US regulator if they still want to access the US market (Interview B).

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4. Development of equivalence in EU financial regulation

4.1. Equivalence in EU financial services legislation

The European Commission’s proactive and relatively extensive use of equivalence stands out among international peers. The EU’s equivalence framework, whilst fragmented across multiple different pieces of legislation, is actually one of the most sophisticated and relied-upon regimes to regulate market access and cross-border cooperation in the world (AFME, 2020: 5). This chapter sets out a short history of the development of equivalence provisions in financial services regulation, including more recent proposals and communications from the EU regarding their approach to and operationalisation of equivalence.

According to the Commission (2017: 4), its equivalence framework in financial services represents “one of the most advanced and most used frameworks to defer to the systems and rules of other jurisdictions”. Commissioner Dombrovskis (2019) has also reiterated that “the EU’s current system for equivalence is one of the most developed in the world”. There is no need to take the Commission’s own word for it: top US regulator Giancarlo noted that it was the EU who first pioneered the use of equivalence as a means to access financial markets (Giancarlo, 2018b), whilst the IMF have identified that in the area of Financial Market Infrastructures (FMIs) specifically the EU “is one of the few [jurisdictions] with close to full deference to home authorities” (IMF, 2018: 17). There are also benefits of the Commission’s utilisation of equivalence beyond those outlined by Dombrovskis regarding supervisory cooperation and market access. For example, the Commission emphasises that equivalence can help raise global standards (2019a: 12), whilst industry bodies emphasise that the Commission’s use of equivalence helps increase “choice, competition and access to liquidity” for market participants (AFME, 2020: 6). Moreover, deference to home regulators helps to deal with practical issues regarding resourcing and budget constraints. Back in 2015, the CFTC - whose jurisdiction over financial market supervision is shared by the SEC - had just under 700 employees, 300 less than desired necessary to properly supervise financial markets according to a former chief (Lindenfeld, 2015: 143). ESMA, by comparison, has approximately 200 employees at the time of writing (EU, 2020).

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For Hanif (2016: 567), the EU’s equivalence frameworks provide a signal that the EU is, in principle, “not protectionist in its mindset, but is willing to open its markets to third parties”. The inclusion of equivalence provisions in EU legislation is especially notable given that, according to Spagna (2018: 28), conflict and fragmentation have been far more dominant as features of global post-crisis reforms rather than deference and cooperation. Moloney (2018a: 184) likewise highlights that, despite the G20 commitments, deference arrangements such as mutual recognition or equivalence determinations remain rare in the regulation and supervision of international financial markets, despite CFTC chair Giancarlo referring to such an approach as simply “common sense” (2018b). The creation and use of equivalence provisions in EU law therefore put into practice commitments made at the G20 and FSB regarding effective regulatory and supervisory cooperation, and the importance of such cooperation as a precondition for the integration of international financial markets has been stressed by market participants (AFME, 2020: 3).

Zeitlin (2015: 329) highlights that the EU has “increasingly made access to the European market conditional on formal assessment by EU authorities of the equivalence of third-country regulation and supervisory arrangements”. Moreover, he identifies that equivalence provisions in financial services have operated as a “critical device” for motivating “ongoing, intensive cooperation and exchange” between the EU and third countries (Zeitlin, 2015: 338). As things stand currently, there is no single framework underpinning equivalence in financial services legislation (European Parliament, 2017). Instead, there is a relatively incoherent framework fragmented across different pieces of European legislation, which has been described as a “complex patchwork of rules” (Moloney, 2018b: 133), an “untidy patchwork” (Ferran, 2017: 56) and a generally “piecemeal approach” (de Vries et al., 2017: 23; Hanif, 2016: 568). In fact, one interviewee noted that, based on direct first-hand experience of negotiating financial services bills in the EU, third-country equivalence provisions are often “tacked on as an afterthought” (Interview B). A separate interviewee also noted the fact that different financial services files were negotiated by different groups of legislators, leading to discrepancies between them as the rules are put together by different teams with differing priorities (Interview D). Nevertheless, equivalence provisions in one form or another are now present in all the key components of the EU’s post-crisis reforms in financial markets,

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(Quaglia, 2015: 167). Whilst this thesis focuses on provisions that provide access to market infrastructure, equivalence can achieve a range of outcomes depending on the legislation in question, from an EU-wide passport (EMIR), a preferential capital treatment for risk exposures (CRR3_{), or a more restricted form of market access (MiFIR for investment firms)}

(AFME, 2020: 5).

In operational terms, the specific requirements for an equivalence determination differ depending on the legislation: the specific technical requirements for EMIR4_{and MiFIR are laid}

out in Annex 2. Typically, the equivalence assessments include (a) a review of the home jurisdiction’s regulation; (b) an assessment of compliance and supervision by the home jurisdiction; and (c) a requirement for reciprocity for EU firms (Nicolaïdis, 2017: 28). There is no manual or guidebook as to how equivalence is assessed by the Commission and assessments often come down to a question of staff judgement (Interview E). This lack of a specific manual or guidelines is unlike the rigorous methodology manual for assessing the implementation of CPMI-IOSCO principles across jurisdictions (CPMI-IOSCO, 2017) for example, which stretches to over 250 pages in length.

The establishment of a formal close and ongoing supervisory relationship is also a common condition for granting an equivalence determination. The Commission’s focus beyond just the legal text when it comes to equivalence is important to highlight: Ferran (2017: 55) notes that assessments of equivalence in financial services depend as much on supervision and enforcement as on the similarity of the regulation on paper. Such a focus on supervisory outcomes means that implementation and enforcement need to be monitored on an ongoing basis, which requires a robust framework for the exchange of information to be put in place between regulators. In the cases identified in this study, the process for assessing equivalence can only be started internally (i.e. a third country cannot commence an assessment or start the process), with equivalence determinations being enacted through Commission implementing acts. One interviewee, previously at the Commission, noted that the usual

3_{Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential}

requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 with EEA relevance.

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public consultation procedure for implementing acts is not followed when it comes to equivalence decisions, where very little if anything is published before they are adopted (Interview E). As implementing acts, the European Parliament has no say or right of review in equivalence determinations, although Dombrovskis (2019) claimed that the process “respects democratic accountability” through the European Securities Committee - a committee chaired by the Commission with high level representatives from EU member states - where the implementing decisions are adopted.

It should also be highlighted that the use of unilateral equivalence or adequacy assessments and determinations also exists outside financial services in the EU’s legislation regarding third countries. For example, with regard to data privacy, the Commission has the power to make data adequacy determinations under Article 45 of the General Data Protection Regulation (GDPR) based on formal advice from the European Data Protection Board, a process which builds on the role of the old Article 29 Working Party (Newman, 2015: 232). There are currently such determinations for 13 third country jurisdictions as of writing (European Commission, 2020). Similarly, equivalence assessments are also conducted by the European Food and Veterinary Office (FVO) to ensure third country systems of food safety are equivalent to that of the EU (Weimer and Vos, 2015: 61)5_{. Any conclusions drawn about the}

use of equivalence in financial services in this thesis therefore may not necessarily hold for equivalence assessments or adequacy assessments made under other pieces of EU legislation.

4.1.1. The 2014 TTIP proposal: a more reciprocal mechanism

During the negotiations for the Transatlantic Trade and Investment Partnership (TTIP), the EU actually made explicit proposals that equivalence assessments should be conducted on a mutual and reciprocal basis, and for such arrangements to be incorporated and codified directly into the trade agreement (Zeitlin, 2015: 353). The proposals for what may appear to be a form of mutual recognition as part of the cooperation regarding financial services were set out in a short policy paper from the Commission in 2014, whilst the proposed legal text

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was also leaked from the Commission. Fundamentally, the proposals would have created “an overarching institutional framework” for “mutual regulatory equivalence assessment and cooperation” (Zeitlin, 2015: 354), creating an ambitious experimentalist set up between relative economic equals. This being said, others have claimed that the TTIP proposals do not set a precedent for mutual recognition per se, as they build on the EU’s existing equivalence model rather than setting up a strict model of mutual recognition (Tarrant et al., 2019: 9). Nonetheless, the proposals appear to be based on experimentalist principles of governance. This includes provisions for enhanced cooperation and coordination between EU and US regulators, and ongoing joint peer reviews of existing rules as part of a regulatory dialogue (European Commission, 2014a: 3). The system would have been backed up by an appeal body, or a technical working group for mediation under the proposed Article 61 (European Commission, 2014b), which would enable the other side to automatically gain equivalence if it was found to have been denied unfairly. This provision is key divergence from the current equivalence model operated by the EU where the default if there is no agreement or determination is for no equivalence to be granted (European Commission, 2014b; Wright and Webb, 2018: 28). The proposal for regulatory equivalence assessments to be performed on a reciprocal basis also appears to represent a step change from their being conducted on a unilateral basis, as is typically provided for under EU legislation. Notably, the proposals also found support among European financial market participants, with the European Banking Federation arguing in favour of such a mutual recognition model in financial services (2013: 3). Indeed, the fact that the proposals were so in sync with industry was even described as “disturbing” by some observers (Corporate Europe Observatory, 2014). Given that these were proposals for negotiations with a specific country, it would not be fair to expect the EU to take a similar approach with every single third country partner. Nevertheless, for Posner (2015: 216) the Commission’s proposals for an explicit form of mutual reliance and mutual recognition in financial services “reveals a degree of hypocrisy and double standards”, given the emphasis that they have placed in relations to other third countries on operating equivalence assessments and determinations on a purely unilateral basis.

Ultimately, the wording on mutual reliance or mutual recognition of standards in financial services was dropped from the negotiations, even before the Trump administration pulled

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the plug on the overall agreement (Wright and Webb, 2018: 28). The US Treasury in particular would not even countenance the proposal, and considered that supervisory coordination and cooperation would be best served through the existing EU-US Financial Regulatory Dialogue (Strezhneva, 2016:3). The relatively fresh memory of the fact that Deutsche Bank was one of the largest recipients of US bail-out funds in the aftermath of the financial crisis has also been highlighted as just one of the reasons the that US Treasury was nervous about such proposals for mutual recognition in financial services (Corporate Europe Observatory, 2014). In the end, the European Council decision on 15 April 2019 declared the TTIP negotiations to be “obsolete and no longer relevant”, somewhat of a death knell for the EU’s proposals for an experimentalist approach to a more mutual mechanism of cooperation and access in financial services with the US (European Council, 2019: 2).

4.1.2. Revised equivalence policies: European Commission 2017 Staff Working Document and 2019 Communication

With the model for including a more explicitly reciprocal arrangement in financial services within a trade agreement having proved unsuccessful, at least as regards the US, the importance of equivalence in the EU’s toolkit therefore cannot be understated. Quite simply, “equivalence determinations govern how EU capital market actors interact with other third countries” (Moloney, 2018b: 114). In doing so, equivalence decisions form a “core element of the Commission’s international strategy for financial services” (Horzempa, 2018: 611). Based on Commission papers produced since the TTIP proposals, equivalence itself appears to be a dynamic and evolving policy area within the EU, with the publication of a Staff Working Document in 2017 and further official Communication in 2019: publications characterised by one interviewee as a series of “bolshier and bolshier statements about equivalence” (Interview B). In between these two documents, a European Parliament report was released calling for reforms to the use of equivalence in financial services, especially for greater transparency of the process (European Parliament, 2018: 4-5). In particular, the Commission documents appear to add, or at least elaborate more clearly on, some important dimensions to the underlying policy behind the EU’s use of equivalence in financial services. All of the interviewees also indicated that the UK’s vote to leave the EU in 2016 was an important factor in motivating the Commission’s increased public communication on equivalence in financial

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services, particularly regarding the focus on risk and proportionality (Interviews A, B, C, D and E).

Firstly, there is a renewed emphasis on risk weighting and proportionality, something emphasised in the 2017 working paper (European Commission, 2017a: 8; European Commission, 2019: 7). Whilst there is heterogeneity among the specific requirements and details of individual equivalence provisions, a proportionate and risk-sensitive approach is seen as a consistent principle underlying all of them (European Commission, 2017a: 8; European Commission, 2019: 5). This emphasis has also been reflected in legislative developments, such as the EMIR 2.2 revisions6_{(European Commission, 2019: 6; EMIR 2.2,}

Article 25). In practice, this approach increases the degree of scrutiny and granularity of assessment applied to third countries that have particularly deep relations with the EU with respect to financial services, including each of those which are subject to a case study within this thesis, namely the US, UK and Switzerland. Both interviewees D and E noted that the emphasises on proportionality and new terminology surrounding such as “high impact” countries started to be used by the Commission as a result of the UK’s leaving the EU, with interviewee E stating such language is “basically saying there is a strong financial link between the EU and the UK” (Interviews D and E).

Secondly, the 2019 Communication sets out that equivalence determinations should be compatible with “other relevant external policy priorities” (p.4), which provides scope for pursuing determinations to achieve strategic objectives. The inclusion of such an explicit focus is particularly significant when read alongside the Swiss case study, where wider strategic aims were pursued in practice. In other words, meeting the technical requirements as per the legislation are a necessary but by no means sufficient condition of receiving an equivalence determination: the Commission explicitly state that they may withhold equivalence “even if third countries are able to demonstrate [that] their [regulatory and supervisory] framework fulfils the relevant criteria” (2019: 8). Of course, it should be noted that in doing so the Commission are applying criteria (i.e. strategic concerns) that are not present in the technical 6_{Regulation (EU) 2019/2099 of European Parliament and of the Council of 23 October 2019 amending Regulation}

(EU) No 648/2012 as regards the procedures and authorities involved for the authorisation of CCPs and requirements for the recognition of third country CCPs.

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criteria for individual equivalence decisions as set out in the relevant pieces of legislation. The industry group IRSG (2020: 17) does not agree that this is a suitable use of equivalence, arguing instead that there “should be a distinct line between financial regulation objectives and other public policy objectives” and noting that other more appropriate policy levers exist to pursue other goals. That being said, its plea for regulators to be “impartial and free from political and business interference” (ibid.: 16) does seem slightly ironic, given that such a statement is being made by a business lobby group within a policy paper.

Thirdly, whilst there is not an explicit reference to the term “reciprocity” in either the 2017 Staff Working Document or the 2019 Communication, both do make clear that the treatment of EU firms in a given third country will be taken into account when making an equivalence decision. In particular, the Commission refers to “mutually accommodating outcomes with third countries”, which highlights that whilst mutual recognition may not be pursued in a formal sense, the principle of reciprocity is still important when making equivalence decisions (European Commission, 2019: 4). That being said, both documents also place very strong emphasis on the unilateral and discretionary nature of equivalence determinations. In fact, the 2017 Staff Working Document (p.9) explicitly states that in making a determination “the Commission ultimately exercises its discretion” (bold in original). This discretion makes an equivalence determination more of a gift to be given – or taken away – by the Commission rather than a formally mutual arrangement. For one interviewee, such discretion makes the framework “vulnerable to political whim” (Interview D). Therefore, whilst reciprocity is clearly important, the determinations are not strictly “mutual”. Indeed, whilst the EU’s relations with the UK and US are of course different, it is notable that the EU rejected out of hand the UK’s proposal for a proportionate yet “reciprocal, mutually agreed” framework for financial services based on collaborative supervision and common outcomes, when the EU previously proposed something similar to the US just a couple of years prior (May, 2018).

5. Methodology and Case Selection

5.1. Documentary analysis and elite interviews

This research is a qualitative attempt to better understand the use of equivalence determinations in practice in the realm of financial services, combining and triangulating