Summary

The European Securities and Markets Authority (“ESMA”) expects a higher number of UK-based market participants to relocate entities, activities or functions to the remaining 27 EU Member States (“EU27”) in order to maintain access to the European financial markets in the event that no alternative passporting arrangements are agreed during the Brexit negotiations. In that context, ESMA has issued an Opinion addressed to national EU regulatory authorities. ESMA is keen to mitigate any supervisory arbitrage from the outset and does not wish to see excessive competition between the national regulatory authorities when it comes to making themselves available to relocating UK entities.

Key takeaways

• ESMA takes a critical view of structures which merely aim at acquiring an EU passport, while the majority of work is outsourced or delegated back to the United Kingdom (or another third country). If ESMA insists on these positions, UK entities wishing to relocate to the EU27 will need to demonstrate real substance in their Member State of establishment in order to avoid being classed as a letter-box entity.
• The Opinion is not always clear and in certain respects seems to go beyond what is actually required under applicable laws. It is to be hoped that there will be further discussion and that a reasonable interpretation and application of the existing laws will be applied.