Esma opinion on NCAs post-Brexit misjudged, says law firm
The opinion issued by the European Securities and Markets Authority (Esma) in regards to the role of National Competent Authorities (NCAs) if and when approached by UK-based businesses seeking to onshore their presence after Brexit misjudges the rights of individual EU27 member states to develop their own financial centres, according to a response from Eversheds Sutherlands.
The law firm’s Brexit expert and Financial Regulatory partner Andrew Henderson said that the guidance around Brexit-related relocation of companies contains a potentially unfair principle.
“The Esma opinion restates EU law, but its rhetorical effect is important. It’s a reminder to EU27 States competing amongst each other to woo UK financial institutions. The key issue hinges on the €64,000 question: to what extent can UK firms maintain current business models by delegating functions from the EU27 back to the UK?” Henderson said.
“What is new and far more ominous and, on the face of it, unfair to UK-based firms ‘relocating’ to the EU 27 is Principle 3.
“Esma is commanding the EU27 regulators not to grant authorisation unless ‘fully satisfied that the member state of establishment was not chosen for the purpose of evading stricter standards in force in other member states’. This is unprecedented, and it is unclear whether the same would be expected of, for example, a US fund manager setting up in an EU27 member state for the first time.
“The opinion is directed at firms relocating to the EU27 as result of Brexit, so it is difficult to see how this would apply to an EU first-timer. It does, however, throw up the question of fairness to UK-based firms seeking to do the same thing who, in the event of a clean Brexit, will be third country firms like US firms. Moreover, there is a question over how Esma will police this as it would be asking some EU27 regulators to curb their natural hospitality, minimum regulatory standards notwithstanding. EU27 financial centres should view Brexit as an opportunity for local job creation and development of financial services. The Esma opinion casts doubt over this in a way that may interfere unjustifiability with EU27 member state autonomy.”
Esma outlined its opinion on 30 May, following earlier warnings from its chair Steven Maijoor at a conference in Luxembourg in March that his Authority would not stand by and allow arbitrage to develop between different jurisdictions seeking to lure businesses from London’s financial centre.