The decision of the UK to leave not only the EU but, as stated by the UK Government, also the single market, has led to a situation in which there is the potential for a significant shift of entities and activities from the UK to the EU27, according to European Securities and Markets Authority (ESMA) chair Steven Maijoor.
In his opening remarks at the BVI 2018 Annual Reception in Brussels on 20 March, Maijoor discussed issues relating to Brexit, delegation, regulatory arbitrage and improved transparency.
Maijoor stated that the UK’s decision to leave the EU and the single market has “triggered concerns about the risk of regulatory arbitrage between the EU27 Member States seeking to attract this business.”
He said: “I am realistic enough to know that such competition for business will always be with us. What we as ESMA felt very strongly was that in the contingency plans that businesses were drawing up, regulatory or supervisory arbitrage should not be a factor.”
"As I have repeatedly clarified, we are not looking to question, undermine or put in doubt the delegation model. We know that this is a key feature of the investment funds industry and that the flexibility to organise centres of excellence in different jurisdictions has contributed to the industry’s success. To put it more bluntly, to us delegation is not a dirty word.”
He explained that what the opinions are seeking to address is “the risk of letterbox entities”.
He said: “I hope you would all agree that it is in no-one’s interest to allow the creation of such entities. Both the UCITS directive and the Alternative Investment Fund Managers Directive explicitly require there to be enough substance in the entity established in the home member state.”
"In other words, financial centres in the EU27 should be free to compete based on the particular strengths they can offer relocating firms, like speed and efficiency, but in all cases, the EU rulebook should be consistently applied. Otherwise, there could be insufficient substance in the EU27, which may pose risks to ESMA achieving its stability and investor protection mandates.”
Maijoor also discussed the second Markets in Financial Instruments Directive (MiFID II). He suggested the industry has already seen positive effects of the changes to cost transparency, introduced by MiFID II and packaged retail and insurance-based investment products (PRIIPs).
He explained that in order to increase the confidence of investors in financial markets, there needs to be a greater trust in the entities producing investment products.
According to Maijoor, “an important step towards achieving that goal lies in greater transparency about the products themselves and the service provided”.
Maijoor concluded his remarks with a reference to supervisory convergence tools that it uses and a reminder that it is exploring ways to improve its stakeholder management. He said: “For this reason, last month, we launched a dedicated stakeholder relations survey, which will remain open until the end of March. I would appreciate receiving your feedback on this important matter."
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