In the current discussion about Brexit and the future relations of the UK with the EU, models are being discussed for how to go about the latter: European Economic Area (EEA or “Norway”), Switzerland, Ukraine, and/or Canada. These discussions range from close to full participation in the Internal Market to having very little access. Even a standard Free Trade Agreement provides a form of basic access to the EU’s Internal Market. The question, therefore, is the quality of the access, bearing in mind that the greater the access, the more important the institutional structure monitoring that access. The most sophisticated model – currently the EEA Agreement - includes a supervisory authority and a court.

While the EU favours an off-the-shelf model, the UK wants a bespoke relationship. At the same time as it rejects the customs union, being in the Internal Market, free movement of people and the jurisdiction of the Court of Justice of the EU (CJEU, formerly ECJ), the UK Government expects to participate in or have access to the Internal Market as much as possible. “Participating” and “having access” however, are not the same. They have different consequences.

A recent example highlighting the differences is the expectation of parts of the financial services sector to continue having access to the Internal Market through a continuation of passporting rights beyond Brexit. Passporting, in short, is the right of a financial services provider with residence in one of the member states of the Internal Market/EEA to freely, and in an unlimited manner, operate and service clients in the whole market under one licence. It has been suggested by some lobbyists for British financial services that one could interpret equivalence in a way that corresponds to passporting. This point of view is justified with the argument of logic and problem solving in a pragmatic manner.

Now, all of this does not correspond with the reality of the EU as a community of law. This is not to say that the EU won’t compromise in the course of the negotiations, but rather to underline that the starting point is always the law.

And in this case the law is that passporting is only available to financial service providers that are based in a country which participates in the EU’s Internal Market, i.e. the EU Member States and the three EFTA States that are a party to the EEA Agreement. This not only encompasses the four freedoms, but it also imperatively comprises an institutional structure to ensure legal homogeneity, with a mechanism of surveillance, enforcement and dispute resolution.

For any other country, though it might have (partial) “access to” the Internal Market in financial services, this access is provided by way of an equivalence decision taken by the European Commission. This will be unilaterally conceded and is revocable, and covers only some of the financial service instruments. In addition, as Switzerland has recently experienced, such decisions come with (political) strings attached.

Switzerland has a set of agreements with the EU that gives the country access to the respective sectors of the internal market, but no agreement which covers financial services, and no overarching institutional arrangement. Hence, equivalence was only offered with regard to the new Markets in Financial Services Directive (MifiD II), for one year, to be renewed – or not – depending on progress of the long-running negotiations between the parties on an institutional agreement.

This Swiss example highlights the more general point that it is important to clearly distinguish between certain notions because in a legal environment the differences matter.