In an opinion addressed to EU national competent authorities (NCAs), the European Securities and Markets Authority has set out 9 principles to support supervisory convergence in the context of the United Kingdom withdrawing from the European Union. The opinion states that, as the UK plays a prominent role in the EU Single Market, the relocation of entities, activities and functions following the UK’s decision to withdraw creates a “unique situation” which requires a common effort at EU level to ensure a consistent supervisory approach to safeguard investor protection, the orderly functioning of financial markets and financial stability.
The opinion, aimed at the 27 EU Members States that will remain in the EU (the EU27), seems designed to ensure there are no incentives or sweeteners given by one Member State over another, and to ensure a balanced playing field. The key points are:
- After the UK’s withdrawal, there should be no automatic recognition of authorisations granted by the FCA. ESMA noted that the authorisation process takes time and encouraged entities seeking to relocate in the EU27 to start the process as early as possible.
- Special attention should be granted to avoid ‘letter-box’ entities in the EU27. EMSA noted that the use of outsourcing or delegation arrangements to third country branches may be an efficient way to perform some functions or activities but said that NCAs should reject any relocation request creating letter-box entities where, for instance, extensive use of outsourcing and delegation is foreseen with the intention of benefitting from an EU passport while essentially performing all substantial activities or functions outside the EU27.
- NCAs must have adequate resources and capacity effectively to supervise and enforce EU law.
ESMA will now work to develop further, sector specific, guidance.
While little is known about what form Brexit will ultimately take, many insurers are already evaluating their options, including possible relocation to mainland Europe. Insurers have already looked at Germany, Luxembourg and Brussels ass potential hubs.
For insurance the Cologne Chamber of Commerce and Industry are seeking to promote Cologne as a smart choice for UK insurers to consider. At an event on Tuesday 13 June (hosted by Ince & Co), the Cologne Chamber of Commerce and Industry, the City of Cologne and several partners from the Cologne insurance industry will be sharing information on Cologne as an insurance hub and on legal issues regarding regulations, employment and taxation in Germany. If you are interested in coming along, please contact email@example.com.