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EU watchdog to stop Brexit 'race to bottom' by financial centres
April 11, 2017 / 5:21 PM / in 3 months

EU watchdog to stop Brexit 'race to bottom' by financial centres

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Steven Maijoor, Chair of the European Securities and Markets Authority, attends a policy dialogue during the Asian Financial Forum in Hong Kong, China January 18, 2016.Bobby Yip

LONDON (Reuters) - The European Union's markets watchdog will issue guidance and possible curbs for national regulators in coming weeks to stop a "race to the bottom" to attract UK-based financial firms after Brexit, it said on Tuesday.

Steven Maijoor, chairman of the European Securities and Markets Authority (ESMA), outlined how the watchdog will keep national regulators toeing the EU line on authorising firms, confirming a Reuters article last month.

"This work is aimed at avoiding competition on regulatory and supervisory practices between member states, and a possible race to the bottom, which might be detrimental to the capital markets union," Maijoor said in a speech in Brussels.

ESMA will publish four "opinions" or formal guidance to the bloc's national securities regulators before the summer, covering general issues and three market sectors.

The general opinion will consider how national regulators should handle day-to-day supervision of relocated operations, in particular when certain functions are subject to outsourcing and delegation.

"Potential limitations to outsourcing and delegation are also being discussed," Maijoor said.

Outsourcing and delegation is common in fund management and in broking, whereby the processing of transactions or other activities across several EU states are centralised in one country.

The broker-dealer trading arms of banks in Britain have asked EU regulators whether their entities in the remaining 27 EU states will still be allowed to outsource operations to London after Britain leaves the bloc in 2019.

Maijoor said it was essential that national regulators do not compete on regulatory and supervisory treatment of UK firms wanting to relocate operations.

"Some practical examples where this may be a risk include such issues as UK firms seeking authorisation from one of the EU27 financial markets regulators and subsequently outsourcing and delegating some of the activities back to the UK entity," he said.

Separately, the European Central Bank reiterated on Tuesday it would not allow banks from Britain to have a euro zone licence if they wanted an unlimited ability to outsource operations back to London.

Maijoor said ESMA's remaining three opinions would address in more detail the areas of asset management, investment firms and secondary markets.

The EU watchdog is also working to set up a "mechanism" for national regulators to share live cases at EU level regarding UK firms seeking authorisation in an EU of 27 states.

"This will allow ESMA to coordinate the consideration of key issues in the authorisation procedures for these entities in order to reach common views on significant relocation files," Maijoor said.

Reporting by Huw Jones; Editing by Mark Potter

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