Brexit commentary | 08 Jul 2016

Brexit: Membership of the EEA does not guarantee full access to the single market for financial services

Overview

There continues to be discussion amongst commentators of the possibility of the UK adopting the "Norway model" (i.e. membership of the European Economic Area), and of permutations including EEA-plus or EEA-minus. 

There are a number of issues the City and wider UK financial services industry must consider when deciding whether EEA membership is the model politicians should favour - there are pros and cons.

Membership of the EEA does not guarantee full access to the single market for financial services:

The UK cannot unilaterally decide which measures to adopt.  It can only adopt measures which all other EEA member states have agreed to adopt by incorporating it in the EEA Agreement.  In at least one case, a measure has not been adopted because it is inconsistent with the constitutions of one or more EEA Member States.

EEA member States can only exercise a "passport" under those EU financial services measures which have been incorporated into the EEA Agreement (and which include a passport). 

There is a lengthy process for adopting into the EEA Agreement any new EU legislation, taking at least 6 months.

There is at present a significant backlog of EU financial services measures due for adoption but which have not yet completed the process.  This includes the Alternative Investment Fund Managers Directive (AIFMD), which came into force in the EU in 2013 and includes a cross-border marketing passport for institutional funds, the Short Selling Regulation and the European Market Infrastructure Regulation. 

Other measures are not even scheduled for adoption, including the Fourth Capital Requirements Directive and Capital Requirements Regulation.

As a member of the EEA, the UK would be bound by the EEA Agreement which, amongst other things enshrines the four fundamental EU freedoms, including that of free movement of people.  There is no provision which allows a member state to gain access to the single market without agreeing to be bound to this.

If the UK wanted to regain access to the EU single market through membership of the EEA it would have to apply to re-join EFTA (its membership of this lapsed when it joined the EEC).  The unanimous consent of the 27 rEU Member States, the European Parliament and the four EFTA member states would be required (i.e. there are "31 vetoes"). It is not a foregone conclusion that the UK would be allowed to re-join.

In practice, EU Member States will be bound by EU legislation and have access to the single market through passporting rights sooner than the EEA EFTA States – sometimes much sooner.  This gives the EU Member States a competitive advantage.

If "EEA-plus" or "EEA-minus" is used shorthand for a bespoke negotiated deal involving access to the single market subject to some controls on migration, then it might be better to refer to this as a "bespoke British model".