services. when it leaves the eu the uk ’ s supervisory framework will, by definition, be ‘ equivalent ’ because – partly in consideration of the commitments set out in prime minister may ’ s letter of notification – european regulations will initially be incorporated en bloc in the uk ’ s internal regulations. any changes made subsequently will have to be examined to ensure that equivalence is maintained. supervisory ‘ equivalence ’, as defined in the eu ’ s financial legislation, gives some benefits to third countries. most of these are exemptions from specific requirements, but in the case of investment services ( mifid / mifir2 ) and alternative investment funds ( aifmd ) the legislation effectively gives equivalent third - country financial intermediaries a single passport of sorts in all eu member states, though only with respect to their professional clientele. ensuring that domestic financial legislation stays aligned with that of europe would make it easier for uk banks to set up a presence in countries, like italy, that only grant authorization after verifying the standard of home country supervision. under a proposal of the european commission included in the review of the capital requirements directive and regulation, in the future, third - country banks that are of systemic importance in the area would have to set up an intermediate parent undertaking ( ipu ) in europe. the ipu and its subsidiaries in the eu would be subject to consolidated supervision and crisis management under european rules. hence, the major uk banking groups – many of which are spin - offs of international groups – would presumably be required to set up an ipu. the uk will certainly try to reach agreements with the eu - 27 that allow it to keep some of the benefits that london banks enjoy in terms of access to the european market. it is impossible to predict what these agreements will be or how they will affect london ’ s competitive advantage. brexit also means that the european banking authority ( eba ) headquartered in london will have to find a new home. the decision, which will be taken in the coming months, is connected to an on - going debate on possible changes to the architecture of european system of financial supervision. the commission has launched a public consultation prior to introducing new legislation. the present model is a sectoral one : the eba is responsible for the banking sector, the eiopa ( headquartered in frankfurt ) for the insurance and pension fund industry, and the esma ( based in paris ) for securities and markets. one of the options considered ( with some variations ) would reduce

- food products, transport equipment, clothing and footwear, and tourism services. the bilateral balance on goods is very positive for italy, while the balance on services is generally even. italy ’ s financial ties with the uk are not as close as those of the other main european countries, as regards both portfolio investment and direct investment. in june 2016, italian residents ’ portfolios included €60. 8 billion worth of uk - issued securities ( that is, 3. 7 per cent of gdp, compared with france ’ s 10. 1 and germany ’ s 5. 9 ). italian investors have limited exposure to exchange rate risk between the euro and sterling, with securities denominated in sterling accounting for little more than 1. 1 per cent of the total. at the end of 2015 italian direct investment in the uk stood at 1. 4 per cent of gdp, compared with significantly higher percentages for the other leading euroarea countries. uk investment in italy amounted to 2. 2 per cent of italian gdp. if negotiations for a free trade deal between the eu and the uk are unsuccessful, trade between the two will become subject to customs duties. to have an idea of the potential economic impact for both sides let us assume that the uk applies the current eu tariffs at least until it has put its own tariff system in place ; in other words, the trade tariffs that the eu economic bulletin 3 / 2016. currently applies outside the area will apply between the area and the uk. on this basis, and considering only the impact effect ( i. e. excluding any reallocation of trade flows ), customs duty on goods exported by the 27 - member eu to the uk would total about €16 billion and the duty on british goods exported to the eu - 27 over €6 billion. customs duty would on average represent a higher proportion of the value of goods ( 5. 2 per cent ) for exports from the eu - 27 to the uk than the other way round ( 3. 9 per cent ) because of the different sectoral composition. in fact, tariffs differ considerably across goods categories. close to one fifth of the value of eu27 exports to the uk relates to motor vehicles, which carry very high duty. moreover, as the structure of exports differs across eu - 27 member countries, the average incidence of the tariff applied to exports to the uk would also differ. in the case of germany, the tariff would be similar to the eu - 27 average ; for france and italy it would be