ESMA warns firms over Brexit flight

Authority chairman Steven Maijoor also cautions EU27 regulators about applying FCA authorisation in their own jurisdictions.

UK financial services firms moving their operations to the EU following Brexit must be able to justify the relocation on business grounds, the chairman of the European Securities and Markets Authority has warned.

In a nine-principle statement, ESMA said relocating companies will have to explain why they have chosen to move to a particular country and that EU regulators must check that a business’s activity in the EU is the main driver for its relocation.

Regulators were warned: “There cannot be any automatic recognition of the authorization granted by the UK regulator into the EU27.” Authorization should only be given if a business can prove that it is not choosing an EU country to avoid stricter standards in force in other EU states.

BC Partners, Hamilton Lane and EQT are among the private fund firms domiciling vehicles and/or setting up management companies in other EU countries. Service providers including FundRock and Trident Trust are also strengthening their regulated capabilities in the EU, in Dublin and Luxembourg respectively.

“A lot of fund managers in the UK are thinking about delegation models. This opinion points to an approach that may make that more difficult and perhaps demand more substance than people were expecting,” said Paul Ellison, a partner and regulatory specialist in the London office of law firm Macfarlanes.

ESMA has struck a similar tone in recent months, expressing concern over temptation by regulators to dilute ESMA standards.

“I fully understand that financial centres across the EU try to make themselves attractive to UK market participants, that they try to be efficient and fast. But what we cannot have is a situation where we embark on regulatory competition, supervisory competition, and where we undermine the robust standards of supervising,” said Maijoor at the ALFI Luxembourg conference in March.