To consider the EU regulatory principles of passporting and equivalence as applied to financial services firms operating from the Crown Dependencies in relation to the Alternative Investment Fund Manager’s Directive and MiFID II and to consider the implications for systemic risk management and macro-prudential supervision

This LLM dissertation discuss the rise of equivalence as an assessed precondition for third countries to access the European Union financial markets. Following the financial crisis there has been a raft of EU financial regulation, often with extraterritorial reach. The Alternative Investment Fund Manager’s Directive and the Markets in Financial Instruments Directive and Regulation will be considered in detail, after which consideration of the evidence provided by European Securities and Markets Authority (ESMA) in relation to the functioning of the AIFMD passport within the EU and the extension of the AIFMD passport outside the EU will be outlined. Despite the lack of evidence to suggest that the parallel banking system either caused or exacerbated the financial crisis, regulation of hedge and private equity funds and over the counter derivatives intensified following 2009 and access to the European markets could be severely curtailed by the extraterritorial imposition of EU regulations. Ostensibly the new regulations have been designed to prevent systemic risk spreading to the system from poorly regulated third countries, and to mark a departure from home state control. However, having examined the Jersey and Guernsey assessments, it will be argued that the prevention of systemic risk is no longer the main concern when assessing equivalent regimes, where market access and reciprocity are key. ESMA is also shown to have considerable power in determining whether equivalence is determined against rules or principles.