The European Union's financial markets regulator has issued a warning to EU member states not to begin a “race to the bottom” to attract business when the UK leaves the bloc.
The opinion, published by the European Securities and Markets Authority (ESMA), aims to “support supervisory convergence” as financial players potentially seek to relocate from the UK post-Brexit.
It notes that businesses may try to set up “letterbox entities” in one of the remaining 27 member states to take advantage of the EU status, while in reality keeping most activities in the UK.
“The UK plays a prominent role in EU financial markets and the relocation of entities, activities and functions to the EU27 creates a unique situation requiring a common effort, at EU level, to safeguard investor protection, the orderly functioning of financial markets and financial stability,” said ESMA's chair Steven Maijoor.
Outsourcing and delegating tasks to third countries – which will include the UK, following its departure from the bloc – should be “strictly framed and consistently supervised”, the opinion added.
ESMA set out nine principles which member states should abide by, including no automatic recognition of existing authorisations if a business relocates, verification of the objective reasons for a relocation, and no outsourcing or delegation to third countries except under strict conditions.
The regulator also announced it would establish a forum, the Supervisory Coordination Network, to allow national authorities to discuss cases of relocating UK market players.