DUBLIN (Reuters) - The scope for one European Union center to undercut another through its interpretation of regulatory rules in a bid to win business after Brexit is limited, Ireland’s central bank governor said on Tuesday.
Financial services firms based in London are beginning to outline their plans to move operations to different member states due to concerns that Britain’s vote to leave the EU will inhibit their ability to sell products in the bloc.
Ireland’s government last month complained to the European Commission that rival centers were “offering a back door to the EU’s single market” by allowing regulatory arbitrage, a reference to undercutting rivals with lax rules.
However Irish Central Bank Governor Philip Lane said that while there is a degree of variation across the system in the interpretation of rules, particularly in non-banking areas such as insurance, the ability of regulators to do so was narrow.
“The scope for regulatory arbitrage is limited. It’s not zero, but it’s limited. By and large, all EU countries operate under the same framework,” Lane told a parliamentary committee.
“There are a lot of exchanges (among European regulators) about trying to come up with a common framework but it’s not going to be conclusive, in the sense that there is still room for risk assessment and there will be differences.”
Ireland is among a handful of EU members in contention to benefit from firms seeking new EU bases, but it has so far missed out on two high profile moves after U.S. insurer AIG (AIG.N) picked Luxembourg and insurance market Lloyd’s of London [SOLYD.UL] chose Brussels.
Insurance sources said the greater flexibility shown by Brussels on capital, allowing Lloyd’s to use reinsurance to transfer a larger amount of capital needed for an EU subsidiary back to its London headquarters, made its pitch more attractive.
Ireland’s central bank has told firms considering moving that they expect them to set up a substantive presence in Ireland.
Lane reiterated that a number of factors, and not just regulation, would determine where firms opted to move and that it was too early to draw any conclusions on how Ireland would ultimately fare.
“Let’s see as time moves on when there is a wider set of examples about the balance... We think across all sectors there is going to be a lot coming in terms of presence,” Lane said.
Reporting by Padraic Halpin; Editing by Stephen Powell