The Magnificent Seven: Exemption, Relief, Equivalence, Recognition, Substitution, Deference, Trust – Reducing Regulatory Duplication and Frictions in the Cross-Border Supply of Financial Services

A financial services supplier authorised in its home state that wishes to supply services cross-border into another state will, absent any relief, have in addition to meet the regulatory requirements of that host state to trade in it. Regulatory frictions including duplicative regulatory requirements are barriers to cross-border trade. This article considers certain techniques deployed to reduce such barriers, noting that trust plays a part in many of them. These techniques grant relief to incoming firms from obligations to comply with the regulatory requirements of a host state. They may take the form of unilateral arrangements, with or without any conditions. There may be assessments of equivalence as a basis for relief from compliance with the host state’s rules: deference to the home state’s regime, a basis for recognition, whether unilateral or mutual. Recognition may be given effect through a party’s domestic laws or in international law under the General Agreement on Trade in Services (GATS) Article VII. A GATS Article VII agreement can relieve regulatory frictions in the financial services sector alone as there is no requirement for “substantial sectoral coverage” as required for regional trade agreements under GATS Article V. Mutual recognition agreements for financial services in international law are, however, few in number.