Exclusive: EU markets watchdog looks to stop unfair Brexit sweeteners

Thu Mar 2, 2017 8:42am EST
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By Huw Jones

LONDON (Reuters) - The European Union's market watchdog is investigating ways to stop national regulators competing unfairly with each other as they try to attract firms from Britain after Brexit in a beauty parade of financial centers.

The European Securities and Markets Authority (ESMA) told Reuters it is studying the risk of "regulatory arbitrage" - where some EU states might offer financial firms lighter supervision than other member states in return for the jobs and high tax revenue they would bring.

While the issue concerns business coming from any non-EU country, ESMA's move is an early sign of how some regulators believe there may be a particular need for precautionary measures for when Britain leaves the bloc.

Regulators in a number of EU countries have made clear they will not tolerate "brass plate" arrangements, where business is officially routed through an office in a member state but senior executives and IT systems remain in London, Europe's dominant financial center.

However, the risk is that some EU states might be tempted to break ranks and allow such front operations after Brexit.

The issue is particularly likely to affect asset management; Britain is the second largest center for this after the United States, managing 5.7 trillion pounds ($7 trillion) on behalf of clients, many of them in continental Europe.

Financial firms in the UK, worried they will lose access to the bloc's capital market, are deciding whether to move some operations and staff to new bases on the continent or in Ireland.

Frankfurt, Paris, Luxembourg and Dublin are vying to attract banks, market infrastructure firms, insurers or asset managers.   Continued...

A Union flag flies next to the flag of the European Union in London, Britain March 2, 2017.   REUTERS/Stefan Wermuth