Financial Services Act 2021

Equivalence determination

6 (1) Article 47 (equivalence determination) is amended as follows.

(2) For paragraph 1 substitute—

“1. The Treasury may by regulations determine that the legal and supervisory arrangements of a third country ensure all of the following—

(a) that firms authorised in that third country to provide investment services or perform investment activities comply with legally binding prudential, organisational and business conduct requirements which have equivalent effect to the relevant UK requirements,

(b) that such firms are subject to effective supervision and enforcement ensuring compliance with the applicable legally binding prudential, organisational and business conduct requirements, and

(c) that the legal framework of that third country provides for an effective equivalent system for the recognition of investment firms authorised under third country legal regimes.

1A. For the purposes of paragraph 1(a), the relevant UK requirements are the following, as they apply on the day on which the Treasury makes the regulations—

(a) the requirements set out in this Regulation;

(b) the requirements set out in 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;

(c) the requirements set out in CRR rules (as defined in section 144A of FSMA);

(d) the requirements set out in Part 9C rules (as defined in section 143F of FSMA);

(e) the requirements set out in Directive 2013/36/EU UK law and Directive 2014/65/EU UK law.

1B. The prudential, organisational and business conduct framework of a third country may be considered to have equivalent effect where that framework fulfils all of the following conditions—

(a) firms providing investment services or performing investment activities in that third country are subject to authorisation and to effective supervision and enforcement on an on-going basis;

(b) such firms are subject to sufficient capital requirements and, in particular, where they provide services or carry out the activities referred to in paragraph 3 or 6 of Part 3 of Schedule 2 to the Regulated Activities Order they are subject to comparable capital requirements to those that would apply if they were established in the United Kingdom;

(c) such firms are subject to appropriate requirements applicable to shareholders and members of their management body;

(d) such firms are subject to adequate business conduct and organisational requirements;

(e) market transparency and integrity is ensured by preventing market abuse in the form of insider dealing and market manipulation.

1C. When making regulations under paragraph 1, the Treasury must take into account whether the third country is a high-risk third country within the meaning of regulation 33 of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (S.I. 2017/692).”

(3) In paragraph 2—

(a) omit point (c), and

(b) at the end insert—

“(d) the procedures concerning the coordination of investigations and on-site inspections that the FCA considers necessary for the purposes of carrying out its functions under this Regulation, which must include a requirement for the FCA to give prior notice to the competent authority of the third country;

(e) the procedures concerning the coordination of other supervisory activities;

(f) the procedures concerning a request for data by the FCA under Article 46(6A)(b);

(g) the mechanism for the FCA to obtain from a third-country firm providing services or performing activities in accordance with Article 46 further information in respect of the firm’s operations by making a request to the competent authority of the third country concerned.”

(4) At the end insert—

“5. The FCA must—

(a) monitor the regulatory and supervisory developments, the enforcement practices and other relevant market developments in third countries for which determinations made by the Treasury in accordance with paragraph 1 are in force in order to verify that the conditions on the basis of which those determinations were made are still fulfilled, and

(b) provide a report of its findings to the Treasury on request.

6. In this Article, “Directive 2013/36/EU UK law” and “Directive 2014/65/EU UK law” mean the law of the United Kingdom which was relied on by the United Kingdom before IP completion day to implement Directive 2013/36/EU or Directive 2014/65/EU (as appropriate), as amended from time to time.”