4 January 2021: The new Free Trade Agreement is a step back from the Single Market arrangements for the recognition of professional qualifications between the UK and the EU – but there is a clear way forward. Dr Martin Manuzi, ICAEW's Regional Director, Europe, summarises what the agreement means for professional recognition in the accountancy sphere and what else is relevant for ICAEW members.

The professional recognition of qualifications is directly relevant for professionals seeking to move and work cross-border in regulated and reserved professional activities. Only statutory audit is regulated in all EU member states and there is considerable diversity in national rules on what is and is not regulated in the accountancy sphere. At ICAEW, we intend to support our members seeking professional recognition in all these areas.

Professional recognition for regulatory purposes has some impact on the broader market recognition of ICAEW's qualification. For this reason, we will also be active in clarifying how we can achieve professional recognition across the whole EU for our members.

What are the relevant FTA provisions on recognition for the accountancy sector?

The Free Trade Agreement (FTA) is a step back from arrangements, which gave legal certainty over recognition procedures on an EU-wide basis. Those procedures enabled professionals to avoid "requalifying from scratch" and gave them access to an aptitude test within an adaptation period to show competence in national laws and requirements.

There is currently no overarching system in place for UK-EU recognition for accountancy – and indeed most professions – which means there is now a gap on an EU-wide basis.

More positively, the FTA establishes an overall architecture to develop recommendations on mutual recognition by either the relevant professional bodies or other authorities between the UK and the EU. The Joint Partnership Council, introduced by the FTA, will approve the recommendations – most likely through a specialised committee within the Joint Partnership Council structure. It is likely to use the compatibility of the respective regimes and the envisioned recognition arrangements' economic value as broad criteria when considering the recommendations.

For professional recognition between the UK and the EU as a whole, the FTA looks to be the channel to pursue professional recognition for accountants. The compatibility of the respective arrangements between the UK and the EU for statutory auditors is undoubtedly high, given that for many years EU legislation has included minimum requirements for the education and training of statutory auditors.

It is welcome that the UK government has committed to providing guidance to UK regulatory authorities and professional bodies to help them benefit from the FTA provisions. Notably, the UK government also refers to the pursuit of other recognition paths. These seem especially relevant to statutory audit and appear to relate to bilateral agreements between the UK and individual EU member states. We are hopeful that the current gap will be closed relatively quickly due to these various approaches.

Why is it important to consider individual EU member state arrangements?

It's necessary to distinguish between EU-wide arrangements for professional recognition and individual EU member state arrangements. The noted gap in the former may be closed at member state level. Some EU member states already have provisions in their national legislation to recognise third-country qualifications, covering accountancy and tax and statutory audit. These take on direct relevance for UK qualifications, including the ICAEW ACA, as from 1 January.

How might recognition arrangements for UK statutory auditors also be addressed?

While acknowledging the joint Partnership Council's role, the mutual recognition of statutory auditors between the UK and the EU may be pursued on a bilateral basis at a faster pace. EU legislation envisages a specific procedure for individual member states to agree to reciprocal recognition of statutory auditors from third countries (Article 44).

In practical terms, this article effectively replicates the arrangements for the recognition of statutory auditors within EU countries (Article 14). Again, this avoids the need for an individual to requalify and involves an aptitude test to bridge jurisdiction-specific tax and company law rules.

That said, it would be preferable to have a time-efficient procedure via the Joint Partnership Council to put in place an EU-wide arrangement with the UK on statutory auditors. In either case, responsibility for this area lies with the UK FRC and UK government where the UK is concerned.

What other factors can support ICAEW students and members in the pursuit of professional recognition within the EU?

ICAEW already has agreements in place with some professional bodies within EU member states or has them in the pipeline, pending final regulatory approval. These cover the in-country recognition of the ICAEW ACA qualification when taken by students in these countries. Subject to progress with the Partnership Council arrangements and bilateral country agreements concerning statutory auditors, ICAEW may seek to expand such in-country agreements further.

ICAEW is a member of the Common Content Project, which has worked over many years to harmonise the learning outcomes of the primary professional body qualifications in the accountancy sector across Europe, save for those elements relating to a national company and tax law.

The project recently completed a comprehensive revalidation programme of its participating qualifications. As part of this, the ICAEW ACA qualification was freshly accredited under all the extensive Common Content requirements. This also provides a key point of reference in any objective assessment leading to the professional recognition of ICAEW members within the EU.

What about the UK regime for recognising EU professionals and others?

In preparation for the end of the transition period when the UK would cease to be obliged to implement the EU-wide regime of professional recognition, the UK legislated to introduce new arrangements. These are now in place and involve some changes.

Among these, notably, UK regulators are only required to recognise an individual holding an EEA or Swiss qualification where the qualification is deemed by the UK body to be comparable in scope, level and content. UK regulators are able, but not required, to provide applicants access to compensation measures (eg an aptitude test) where the EEA or Swiss qualification falls short.

These and other changes will inform ICAEW policy in the treatment of applications. We note that further changes to the UK regime are expected in due course.