EU markets watchdog raps national regulators over Brexit hubs

© Reuters.

By Huw Jones

LONDON (Reuters) - Regulators in Ireland, Luxembourg and the Netherlands allowed investment funds shifting operations from London to the European Union after Brexit to operate with too few senior staff in their new locations, the EU's securities watchdog said on Thursday.

After Britain voted in 2016 to leave the EU, hundreds of investment funds, trading platforms, banks and insurers raced to open hubs in the EU as they would no longer be able to use London as a base to serve the EU from the end of 2020.

The European Securities and Markets Authority (ESMA) set out guidance to stop national markets regulators in the bloc going soft on rules to attract firms and jobs from London.

ESMA said in a peer review on Thursday of how the guidance was applied that supervisory practices of regulators from Ireland and Dublin - the bloc's two main listing centres for investment funds - and the Netherlands "did not meet supervisory expectations".

The three regulators authorised firms for which the overall number of senior managers and human and technical resources appeared insufficient, ESMA said.

Only one national regulator from the bloc, France, fully met the supervisory expectations when it came to ensuring proper governance of Brexit hubs.

France, Ireland, Luxembourg and the Netherlands also did not meet requirements regarding "delegation", a reference to a longstanding global practice which allows asset managers in one country, Britain in this case, to pick stocks and bonds for funds listed in the EU, as long as they meet minimum conditions.

There was also a flurry of new trading venues in the EU, which helped Amsterdam overtake London to become Europe's biggest share trading centre after Brexit.

ESMA said it "regretted" that regulators from France, Ireland and the Netherlands authorised trading venues to relocate and operate with less staff working directly from the EU than outside the EU.

ESMA therefore calls on them to "set in place monitoring strategies regarding relocated trading venues with a view to establish a more balanced repartition between activities performed outside the EU and directly in the EU".

ESMA called on Germany to check "more thoroughly" situations where extensive outsourcing arrangements at new EU hubs "may render an applicant firm a letter-box entity". Germany should set up a formal process to record all conditions for authorising firms.