EU-US COOPERATION ON FINANCIAL SERVICES IN THE TTIP

The EU aims at establishing a framework for regulatory cooperation on financial services in the TTIP. The goal is to create an insitutional framework of EU and US regulators to make sure the EU and US rules work together, which shall contribute towards preventing future crisis.

EU Proposal

The EU proposes to establish within the TTIP framework, a transparent, accountable and rule-based process which would commit the two parties to work together towards strengthening financial stability. The regulatory cooperation would be based on a number of principles:

• Joint work to ensure timely and consistent implementation of internationally-agreed standards for regulation and supervision.
• Mutual consultations in advance of any new financial measures that may significantly affect the provision of financial services between the EU and the US and to avoid introducing rules unduly affecting the jurisdiction of the other party.
• Joint examination of the existing rules to examine whether they create unnecessary barriers to trade.
• A commitment to assessing whether the other jurisdiction's rules are equivalent in outcomes.

These general principles would be backed by specific arrangements for the governance of the EU-US regulatory cooperation guidelines on equivalence assessments and commitments to exchange necessary and appropriate data between regulators.

The core element of the EU proposal is the commitment to outcome-based assessment of whether the other party's regulatory and supervisory framework is equivalent. This could potentially lead to mutual reliance on the rules of the other party. It should be stressed that the EU does not envisage each party making binding declarations on the equivalence of the other's entire regulatory and supervisory framework, but rather carrying out a detailed assessment of the consistency of the implementation of each standard.

Under the EU proposal, regulators would still have the possibility to take the necessary measures to protect financial stability. Regulators and supervisors on both sides of the Atlantic would keep the prerogative to take measures for prudential reasons. Regulators would only be bound by the principles of good cooperation and would need to take into account the potential impact of the rules of the other party when making a proposal. They would need to factor in the negative implications for the other party and explain the choices made if such implication were to remain in the final rule.

The aim of the EU proposal is NOT to negotiate within the TTIP on the substance of international standards, on the on-going implementation of these standards or on other elements of on-going regulatory reforms (e.g. the Volcker rule, or rules based on foreign banking organisations) that are being currently implemented. Discussions on these subjects may continue in parallel with, but outside of, the TTIP negotiations.

The EU proposal is forward looking and it aims to achieve consistent and high level of regulation across the Atlantic, on the basis of the internationally agreed standards. The new accountable regulatory cooperation framework, to be established by the TTIP, would provide the right setting in which to continue the joint EU/US work and dialogue on substance of financial regulations. Currently, both the EU and the US are similarly advanced in overhauling financial regulation in response to crisis and are implementing the same set of standards. In fact, the pre-condition for the joint framework for enhanced regulatory cooperation is that both jurisdictions have equally robust financial regulations in place and that both jurisdictions work together to strengthen financial standards, not to weaken them. The EU is proposing this EU/US regulatory cooperation on the premise that the US shares the EU's ambition to advance global regulatory reforms and that both parties will continue to implement high-quality regulatory standards.

The EU proposal offers the opportunity to lay the long-term foundations of an integrated and stable financial market. Without this framework, in a few years' time, when the crisis has passed from memory, there is a risk that financial regulation could again be dominated by predominantly national considerations, leading once again to regulatory divergence and opening the door to financial instability.

The EU believes that it is in the interests of both the EU and US to agree within the TTIP on a framework for regulatory coherence in financial services. The benefits of transatlantic integration are clear:

• It would strengthen financial stability, as potential problems would be spotted together and addressed jointly. Furthermore, greater coherence could significantly reduce instances of regulatory arbitrage.
• By bridging regulatory divergence, a larger and more efficient market would be created for EU and US financial firms.
• It would improve the ability of the integrated financial systel to provide financing in the real economy.
• Finally, an integrated transatlantic marketplace would have a major global impact on financial markets and regulation and would solidify the leading role that the EU and the US play in financial regulation.