In an effort to harmonise investor protection across the EU and ensure effective market competition, a framework has been established for financial institutions, funds and market infrastructure established outside the EU to access European investors and markets. Under certain key pieces of current and proposed EU legislation, such access generallywill require the determination of the “equivalence” of the local regulatory system governing the non-EU institution. Further, co-operation agreements may need to be put in place between the third country and a EU member state or ESMA. This note sets out the requirements for different types of market participants to gain access to the EU markets.

Currently, access to Europe for most sectors of the financial markets is based on national laws concerning marketing to customers and the so-called “regulatory perimeter.” Such national laws differ quite drastically within Europe. For example, the UK’s “overseas persons exclusion” allows a considerable amount of cross-border business to be done with regulated financial institutions and large corporates within the UK. It has been cited as one of the main reasons why the city of London has retained its status as a major financial centre for international business. In contrast, the position in much of continental Europe is unfavorable to foreign institutions wishing to deal with customers without local registration. A variety of European measures are aiming to provide a greater deal of consistency for the access of third country institutions. In this client note, we consider the position of institutions outside of Europe wishing to do cross-border business under proposed and recently published European legislation. Much of this legislation is either not yet in force or remains to be invoked so, in the interim, the existing maze of national laws remains to be navigated.