Esma tackles post-Brexit regulatory arbitrage

Author: Lizzie Meager | Published: 5 May 2017
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The European Securities and Markets Authority (Esma) is preparing a series of best practice guidelines for UK-based firms looking to relocate after Brexit, following concerns about a regulatory race to the bottom.

Since the UK voted to leave the EU last June the regulator has repeatedly taken issue with about member states offering incentives to lure financial institutions in. The European Central Bank, which is responsible for approving licences for banks wishing to relocate inside the bloc, has also weighed in with its concerns.

“Trying to find the best location in the EU27 is understandable, but it should not be done on the basis of competition on regulatory standards,” said Esma chairman Stephen Maijoor at the International Capital Market Association’s annual conference in Luxembourg yesterday. “So, we have agreed on common principles to ensure it is done in an appropriate way.”

"[Luxembourg is] not planning any special measures, because it is not necessary and it doesn’t send the right signal"

Maijoor said these standards, which principally relate to delegation and outsourcing, will be made public before the summer, with a general opinion to be published at an earlier stage. The regulator will produce general principles and specific opinions for asset managers, investment firms and secondary markets activity.

The standards will also create a mechanism for national competent authorities to coordinate their response to major relocations by UK-based banks.

Member states have indeed been pulling out all the stops for a slice of London’s financial services.

France’s securities regulator launched a one-stop-shop for companies looking to set up there late last year, while Irish authorities complained about the conduct of other member states when AIG confirmed it would be moving some operations to Luxembourg in March.

Earlier in the day, Luxembourg’s finance minister Pierre Gramegna said explicitly that the country was not taking any special measures to attract businesses from London.

Luxembourg won't be implementing new measures to draw businesses out of London

“There are EU rules that say that to qualify as a subsidiary, you need to put certain functions in Luxembourg, or wherever you choose, and that’s what these companies will do,” he said.

“It is not just setting up an office somewhere – it’s putting substance somewhere to have a credible presence. We are not planning any special measures, because it is not necessary and it doesn’t send the right signal.”

Gramegna also said it is time to remove the drama from Brexit talks.

Meanwhile the Brexodus of the banks has continued, with JPMorgan Chase announcing yesterday it plans to move hundreds of staff from London to Dublin, Frankfurt and Luxembourg, as well as adding staff in the Middle East.“Just because UK firms are losing automatic single market access, it doesn’t mean you can’t do business. It hasn’t stopped the Swiss banks for example,” he said. “It may get more complex in future, but the bridges will still be there.”

See also

Passporting fears push market to Brexit-proof loans
Vince Cable: Brexit is a body blow for the City
Frankfurt surges in Brexit battle for London’s business