City firms won't get away with 'letterbox' EU hubs after Brexit, watchdog warns
UK financial firms hoping to avoid any Brexit aftershocks by setting up a 'letterbox' office on the continent will not get away with it, the EU securities watchdog has warned.
Businesses across the City are looking at how they can minimise the impact of a hard Brexit, which would see UK firms lose the ability to service clients in the EU, by setting up licensed hubs overseas.
However the European Securities and Markets Authority (ESMA) on Wednesday listed nine conditions firms should meet if they want to do so, sending a clear message that firms will not be able to side-step the rules.
In a move to crack down on shell or 'letterbox' hubs, the watchdog said EU countries - which are currently competing to attract UK financial firms post-Brexit - need to be wary of offices that still have critical functions in London.
This will make life difficult for countries hoping to win business over rival centres by offering post-Brexit sweeteners, such as the opportunity to outsource chunks of work to London; ESMA warned that any outsourcing to a UK entity needs to be strictly supervised.
While it acknowledged that a number of companies see their EU branches as a safety net, the Paris-based watchdog said there should be no "automatic recognition of existing authorisations" - meaning many companies might well have to start from scratch.
ESMA chair Steven Maijoor said it was vital that British firms were subject to the same standards as the remaining 27 EU countries post-Brexit, in order to avoid "competition on regulatory and supervisory practices" between members
"The UK plays a prominent role in EU financial markets and the relocation of entities, activities and functions to the EU27 creates a unique situation requiring a common effort, at EU level, to safeguard investor protection, the orderly functioning of financial markets and financial stability," he said.
The guidance comes months after Deutsche Bundesbank board member Dr Andreas Dombret said at a conference that Germany "will not accept any empty shells or 'letterbox companies' where the business effectively continues to be done out of London".
A number of companies in the financial services sector have already outlined their post-Brexit contingency plans, with Luxembourg, Dublin and Frankfurt emerging as popular locations for offices.
City firms won't get away with 'letterbox' EU hubs after Brexit, watchdog warns*
