At a conference at the headquarters of the think-tank Bruegel on Friday 2 June, participants discussed the controversial issue of the future rules to govern the activities of British financial institutions relocating to the territory of one of the 27 member states due to their wish to retain access to the European market once the UK leaves the EU.
“No one knows where this is going to end”, said Gerry Cross, director for policy and risk of the Central Bank of Ireland, stressing that the debate is based on the assumption that it will be a “hard Brexit” and the UK will be considered a third country.
Financial undertakings based in the UK are certainly considering their options as to how to arrange their activities on a new marketplace divided between the United Kingdom and the EU27. For their part, the national regulators and European supervisory authorities must determine their requirements to authorise local operations of investment banks, asset managers and insurance companies on the European market.
The participants first of all stressed the need to avoid a “mismatch” between the rules and reality. “The financial industry did not choose Brexit”, Cross said. It will be an enormous challenge for the industry, which will require a certain degree of “pragmatism” and will inevitably give rise to “differences of opinion”, he said.
According to Simon Gleeson, a UK lawyer specialising in banking law and the financial markets, the headquarters of the company would have to be in the UK, involving local risk management, local operational management and local staff. It will be necessary to determine the extent to which local management may be embedded in the global management chain and to assess the costs of relocating, he added.
Emphasis was then laid on the effectiveness of supervision. Many attendees referred to the opinion returned by the European Securities and Markets Authority (ESMA) earlier this week, listing nine principles devised to guide prudential supervision to be carried out by the national supervisors (see EUROPE 11799).
The representative of the Central Bank of Ireland stressed that effective supervision requires access to persons and documents, but also requires presence in the same “sphere of influence”. This will have consequences on the requirements in terms of presence and location, he said.
Other more specific aspects will also have to be taken into account, such as group interaction, reinsurance and externalisation.
At the conference, Stéphane Pontoizeau of the French Financial Markets Authority also highlighted the need for pragmatism on these issues and stressed the need for regulatory cooperation, going on to praise ESMA for the work it has carried out.
Finally, when asked what would be a good agreement in this field, Gleeson’s response was “a win-win deal”, going on to add that “the question is how to achieve it”. (Original version in French by Marion Fontana)